G.R. No. 88866, February 18, 1991
Metrobank then sued Golden
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs. COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO
and GLORIA CASTILLO, respondents. Angara, Abello,
Concepcion, Regala & Cruz for petitioner. Bengzon, Zarraga,
Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo. Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association, Inc.
This case, for all its seeming complexity, turns on a simple
question of negligence. The facts, pruned of all non-essentials,
are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with
branches throughout the Philippines and even abroad. Golden
Savings and Loan Association was, at the time these events
happened, operating in Calapan, Mindoro, with the other
private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account
with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have
been indorsed by their respective payees, followed by Gomez
as second indorser.1
On various dates between June 25 and July 16, 1979, all these
warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings
Account No. 2498 in the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing by the branch office
to the principal office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to
the Calapan branch several times to ask whether the warrants
had been cleared. She was told to wait. Accordingly, Gomez
was meanwhile not allowed to withdraw from his account.
Later, however, "exasperated" over Gloria's repeated inquiries
and also as an accommodation for a "valued client," the
petitioner says it finally decided to allow Golden Savings to
withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount
of P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually collecting the
total amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last withdrawal was made on
July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32
of the warrants had been dishonored by the Bureau of Treasury
on July 19, 1979, and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the
deficit in its account.
The demand was rejected.
Savings in the Regional Trial Court of Mindoro.5 After trial,
judgment was rendered in favor of Golden Savings, which,
however, filed a motion for reconsideration even as Metrobank
filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties
of defendant Golden Savings and Loan Association, Inc. and
defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate
and credit to such account such amount existing before the
debit was made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan
Association, Inc. to withdraw the amount outstanding thereon
before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings
and Loan Association, Inc. attorney's fees and expenses of
litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno
Castillo and Lucia Castillo attorney's fees and expenses of
litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed,
prompting Metrobank to file this petition for review on the
following grounds:
1. Respondent Court of Appeals erred in disregarding and
failing to apply the clear contractual terms and conditions on
the deposit slips allowing Metrobank to charge back any
amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances
where the checks or treasury warrants are forged or
unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation
is that of a mere collecting agent which cannot be held liable for
its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent
Court of Appeals, Metrobank is made to pay for warrants
already dishonored, thereby perpetuating the fraud committed
by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as
between Metrobank and Golden Savings, the latter should bear
the loss.
4. Respondent Court of Appeals erred in holding that the
treasury warrants involved in this case are not negotiable
instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court
that Metrobank was indeed negligent in giving Golden Savings
the impression that the treasury warrants had been cleared and
that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to
allow the withdrawal. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that to all
appearances belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants
that Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own.
It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.7 It was only when
Metrobank gave the go-signal that Gomez was finally allowed
by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have
exercised more care in checking the personal circumstances of
Gomez before accepting his deposit does not hold water. It was
Gomez who was entrusting the warrants, not Golden Savings
that was extending him a loan; and moreover, the treasury
warrants were subject to clearing, pending which the depositor
could not withdraw its proceeds. There was no question of
Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the signatures
of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due
care and diligence and cannot be faulted for the withdrawals it
allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness.
The amount involved was not trifling — more than one and a
half million pesos (and this was 1979). There was no reason
why it should not have waited until the treasury warrants had
been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance — and
notwithstanding that it had not received a single centavo from
the proceeds of the treasury warrants, as it now repeatedly
stresses — it allowed Golden Savings to withdraw — not once,
not twice, but thrice — from the uncleared treasury warrants in
the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of
Gloria Castillo about the clearance and it also wanted to
"accommodate" a valued client. It "presumed" that the warrants
had been cleared simply because of "the lapse of one
week."8 For a bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank would
invoke the conditions printed on the dorsal side of the deposit
slips through which the treasury warrants were deposited by
Golden Savings with its Calapan branch. The conditions read
as follows:
Kindly note that in receiving items on deposit, the bank
obligates itself only as the depositor's collecting agent,
assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved to
charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies
to checks drawn on local banks and bankers and their
branches as well as on this bank, which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft or any
other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it
was acting only as a collecting agent for Golden Savings and
give it the right to "charge back to the depositor's account any
amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft of any
other reason." It is claimed that the said conditions are in the
nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the
deposit slips.
Doubt may be expressed about the binding force of the
conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the
depositor. Indeed, it could be argued that the depositor, in
signing the deposit slip, does so only to identify himself and not
to agree to the conditions set forth in the given permit at the
back of the deposit slip. We do not have to rule on this matter
at this time. At any rate, the Court feels that even if the deposit
slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting agent for
Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not
exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but
also for negligence, which shall be judged 'with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation.
The negligence of Metrobank has been sufficiently established.
To repeat for emphasis, it was the clearance given by it that
assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists (although this
is refuted by Golden Savings) but in any case that clearance
could be implied from its allowing Golden Savings to withdraw
from its account not only once or even twice but three times.
The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added
to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount
if the warrants are not paid for any reason is not acceptable.
Any reason does not mean no reason at all. Otherwise, there
would have been no need at all for Golden Savings to deposit
the treasury warrants with it for clearance. There would have
been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a
condition, if interpreted in the way the petitioner suggests, is
not binding for being arbitrary and unconscionable. And it
becomes more so in the case at bar when it is considered that
the supposed dishonor of the warrants was not communicated
to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier
negligence in giving express or at least implied clearance to the
treasury warrants and allowing payments therefrom to Golden
Savings. But that is not all. On top of this, the supposed reason
for the dishonor, to wit, the forgery of the signatures of the
general manager and the auditor of the drawer corporation, has
not been established.9 This was the finding of the lower courts
which we see no reason to disturb. And as we said in MWSS v.
Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
SCRA 238). It must be established by clear, positive and
convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the
treasury warrants in question are not negotiable instruments.
Clearly stamped on their face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that
they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law,
especially the underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to
be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order
or promise to pay is unconditional within the meaning of this
Act though coupled with —
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the
instrument judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be
made on the treasury warrants makes the order or promise to
pay "not unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to Abubakar vs. Auditor
General11 where the Court held:
The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights and
privileges of a holder in due course, free from defenses. But
this treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face
the words "payable from the appropriation for food
administration, is actually an Order for payment out of "a
particular fund," and is not unconditional and does not fulfill one
of the essential requirements of a negotiable instrument (Sec. 3
last sentence and section [1(b)] of the Negotiable Instruments
Law).
Metrobank cannot contend that by indorsing the warrants in
general, Golden Savings assumed that they were "genuine and
in all respects what they purport to be," in accordance with
Section 66 of the Negotiable Instruments Law. The simple
reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of
the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee
when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank
of the Philippine Islands,12 but we feel this case is inapplicable
to the present controversy.1âwphi1 That case involved checks
whereas this case involves treasury warrants. Golden Savings
never represented that the warrants were negotiable but signed
them only for the purpose of depositing them for clearance.
Also, the fact of forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai Alai Corporation
negligent in accepting the checks without question from one
Antonio Ramirez notwithstanding that the payee was the Inter-
Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can be imputed
to Golden Savings.
We find the challenged decision to be basically correct.
However, we will have to amend it insofar as it directs the
petitioner to credit Golden Savings with the full amount of the
treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was
P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the
dishonor. The amount he has withdrawn must be charged not
to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of
P586,589.00 should be debited to Golden Savings, as
obviously Gomez can no longer be permitted to withdraw this
amount from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the
modification that Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of
P586,589.00 only and thereafter allowing defendant Golden
Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
SO ORDERED.
G.R. No. L-63419 December 18, 1986
FLORENTINA A. LOZANO, petitioner, vs. THE HONORABLE
ANTONIO M. MARTINEZ, in his capacity as Presiding
Judge, Regional Trial Court, National Capital Judicial
Region, Branch XX, Manila, and the HONORABLE JOSE B.
FLAMINIANO, in his capacity as City Fiscal of
Manila, respondents.
The constitutionality of Batas Pambansa Bilang 22 (BP 22 for
short), popularly known as the Bouncing Check Law, which
was approved on April 3, 1979, is the sole issue presented by
these petitions for decision. The question is definitely one of
first impression in our jurisdiction.
These petitions arose from cases involving prosecution of
offenses under the statute. The defendants in those cases
moved seasonably to quash the informations on the ground
that the acts charged did not constitute an offense, the statute
being unconstitutional. The motions were denied by the
respondent trial courts, except in one case, which is the subject
of G. R. No. 75789, wherein the trial court declared the law
unconstitutional and dismissed the case. The parties adversely
affected have come to us for relief.
As a threshold issue the former Solicitor General in his
comment on the petitions, maintained the posture that it was
premature for the accused to elevate to this Court the orders
denying their motions to quash, these orders being
interlocutory. While this is correct as a general rule, we have in
justifiable cases intervened to review the lower court's denial of
a motion to quash. 1 In view of the importance of the issue
involved here, there is no doubt in our mind that the instant
petitions should be entertained and the constitutional challenge
to BP 22 resolved promptly, one way or the other, in order to
put to rest the doubts and uncertainty that exist in legal and
judicial circles and the general public which have unnecessarily
caused a delay in the disposition of cases involving the
enforcement of the statute.
For the purpose of resolving the constitutional issue presented
here, we do not find it necessary to delve into the specifics of
the information involved in the cases which are the subject of
the petitions before us. 2 The language of BP 22 is broad
enough to cover all kinds of checks, whether present dated or
postdated, or whether issued in payment of pre-existing
obligations or given in mutual or simultaneous exchange for
something of value.
I.BP 22 punishes a person "who makes or draws and issues
any check on account or for value, knowing at the time of issue
that he does not have sufficient funds in or credit with the
drawee bank for the payment of said check in full upon
presentment, which check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit or would have
been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment."
The penalty prescribed for the offense is imprisonment of not
less than 30 days nor more than one year or a fine or not less
than the amount of the check nor more than double said
amount, but in no case to exceed P200,000.00, or both such
fine and imprisonment at the discretion of the court. 3
The statute likewise imposes the same penalty on "any person
who, having sufficient funds in or credit with the drawee bank
when he makes or draws and issues a check, shall fail to keep
sufficient funds or to maintain a credit to cover the full amount
of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is
dishonored by the drawee bank. 4
An essential element of the offense is "knowledge" on the part
of the maker or drawer of the check of the insufficiency of his
funds in or credit with the bank to cover the check upon its
presentment. Since this involves a state of mind difficult to
establish, the statute itself creates a prima facie presumption of
such knowledge where payment of the check "is refused by the
drawee because of insufficient funds in or credit with such bank
when presented within ninety (90) days from the date of the
check. 5 To mitigate the harshness of the law in its application,
the statute provides that such presumption shall not arise if
within five (5) banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements for
payment of the check by the bank or pays the holder the
amount of the check.
Another provision of the statute, also in the nature of a rule of
evidence, provides that the introduction in evidence of the
unpaid and dishonored check with the drawee bank's refusal to
pay "stamped or written thereon or attached thereto, giving the
reason therefor, "shall constitute prima facie proof of "the
making or issuance of said check, and the due presentment to
the drawee for payment and the dishonor thereof ... for the
reason written, stamped or attached by the drawee on such
dishonored check." 6
The presumptions being merely prima facie, it is open to the
accused of course to present proof to the contrary to overcome
the said presumptions.
II.BP 22 is aimed at putting a stop to or curbing the practice of
issuing checks that are worthless, i.e. checks that end up being
rejected or dishonored for payment. The practice, as discussed
later, is proscribed by the state because of the injury it causes
to t public interests.
Before the enactment of BP 22, provisions already existed in
our statute books which penalize the issuance of bouncing or
rubber checks. Criminal law has dealth with the problem within
the context of crimes against property punished as "estafa" or
crimes involving fraud and deceit. The focus of these penal
provisions is on the damage caused to the property rights of
the victim.
The Penal Code of Spain, which was in force in the Philippines
from 1887 until it was replaced by the Revised Penal Code in
1932, contained provisions penalizing, among others, the act of
defrauding another through false pretenses. Art. 335 punished
a person who defrauded another "by falsely pretending to
possess any power, influence, qualification, property, credit,
agency or business, or by means of similar deceit." Although no
explicit mention was made therein regarding checks, this
provision was deemed to cover within its ambit the issuance of
worthless or bogus checks in exchange for money. 7
In 1926, an amendment was introduced by the Philippine
Legislature, which added a new clause (paragraph 10) to
Article 335 of the old Penal Code, this time referring in explicit
terms to the issuance of worthless checks. The amendment
penalized any person who 1) issues a check in payment of a
debt or for other valuable consideration, knowing at the time of
its issuance that he does not have sufficient funds in the bank
to cover its amount, or 2) maliciously signs the check differently
from his authentic signature as registered at the bank in order
that the latter would refuse to honor it; or 3) issues a postdated
check and, at the date set for its payment, does not have
sufficient deposit to cover the same.8
In 1932, as already adverted to, the old Penal Code was
superseded by the Revised Penal Code. 9 The above
provisions, in amended form, were incorporated in Article 315
of the Revised Penal Code defining the crime of estafa. The
revised text of the provision read as follows:
Art. 315. Swindling (estafa).—Any person who shall defraud
another by any of the means mentioned hereinbelow shall be
punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or
fraudulent acts executed prior to or simultaneously with the
commis sion of the fraud:
(a) By using fictitious name, or falsely pretending to possess
power, influence, qualifications, property, credit, agency,
business or imaginary transactions, or by means of other
similar deceits;
xxx xxx xxx
(d) By postdating a check, or issuing a check in payment of an
obligation the offender knowing that at the time he had no
funds in the bank, or the funds deposited by him were not
sufficient to cover the amount of the cheek without informing
the payee of such circumstances.
The scope of paragraph 2 (d), however, was deemed to
exclude checks issued in payment of pre-existing
obligations. 10 The rationale of this interpretation is that in
estafa, the deceit causing the defraudation must be prior to or
simultaneous with the commission of the fraud. In issuing a
check as payment for a pre-existing debt, the drawer does not
derive any material benefit in return or as consideration for its
issuance. On the part of the payee, he had already parted with
his money or property before the check is issued to him hence,
he is not defrauded by means of any "prior" or "simultaneous"
deceit perpetrated on him by the drawer of the check.
With the intention of remedying the situation and solving the
problem of how to bring checks issued in payment of pre-
existing debts within the ambit of Art. 315, an amendment was
introduced by the Congress of the Philippines in 1967, 11 which
was enacted into law as Republic Act No. 4885, revising the
aforesaid proviso to read as follows:
(d) By postdating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his
funds deposited therein were not sufficient to cover the amount
of the check. The failure of the drawer of the check to deposit
the amount necessary to cover his check within three (3) days
from receipt of notice from the bank and/or the payee or holder
that said check has been dishonored for lack or insufficiency of
funds shall be puma facie evidence of deceit constituting false
pretense or fraudulent act.
However, the adoption of the amendment did not alter the
situation materially. A divided Court held in People vs. Sabio,
Jr. 12 that Article 315, as amended by Republic Act 4885, does
not cover checks issued in payment of pre-existing obligations,
again relying on the concept underlying the crime of estafa
through false pretenses or deceit—which is, that the deceit or
false pretense must be prior to or simultaneous with the
commission of the fraud.
Since statistically it had been shown that the greater bulk of
dishonored checks consisted of those issued in payment of
pre-existing debts, 13 the amended provision evidently failed to
cope with the real problem and to deal effectively with the evil
that it was intended to eliminate or minimize.
With the foregoing factual and legal antecedents as a
backdrop, the then Interim Batasan confronted the problem
squarely. It opted to take a bold step and decided to enact a
law dealing with the problem of bouncing or worthless checks,
without attaching the law's umbilical cord to the existing penal
provisions on estafa. BP 22 addresses the problem directly and
frontally and makes the act of issuing a worthless check malum
prohibitum. 14
The question now arises: Is B P 22 a valid law?
Previous efforts to deal with the problem of bouncing checks
within the ambit of the law on estafa did not evoke any
constitutional challenge. In contrast, BP 22 was challenged
promptly.
Those who question the constitutionality of BP 22 insist that: (1)
it offends the constitutional provision forbidding imprisonment
for debt; (2) it impairs freedom of contract; (3) it contravenes
the equal protection clause; (4) it unduly delegates legislative
and executive powers; and (5) its enactment is flawed in that
during its passage the Interim Batasan violated the
constitutional provision prohibiting amendments to a bill on
Third Reading.
The constitutional challenge to BP 22 posed by petitioners
deserves a searching and thorough scrutiny and the most
deliberate consideration by the Court, involving as it does the
exercise of what has been described as "the highest and most
delicate function which belongs to the judicial department of the
government." 15
As we enter upon the task of passing on the validity of an act of
a co-equal and coordinate branch of the government, we need
not be reminded of the time-honored principle, deeply ingrained
in our jurisprudence, that a statute is presumed to be valid.
Every presumption must be indulged in favor of its
constitutionality. This is not to say that we approach our task
with diffidence or timidity. Where it is clear that the legislature
has overstepped the limits of its authority under the constitution
we should not hesitate to wield the axe and let it fall heavily, as
fall it must, on the offending statute.
III.Among the constitutional objections raised against BP 22,
the most serious is the alleged conflict between the statute and
the constitutional provision forbidding imprisonment for debt. It
is contended that the statute runs counter to the inhibition in the
Bill of Rights which states, "No person shall be imprisoned for
debt or non-payment of a poll tax." 16 Petitioners insist that,
since the offense under BP 22 is consummated only upon the
dishonor or non-payment of the check when it is presented to
the drawee bank, the statute is really a "bad debt law" rather
than a "bad check law." What it punishes is the non-payment of
the check, not the act of issuing it. The statute, it is claimed, is
nothing more than a veiled device to coerce payment of a debt
under the threat of penal sanction.
First of all it is essential to grasp the essence and scope of the
constitutional inhibition invoked by petitioners. Viewed in its
historical context, the constitutional prohibition against
imprisonment for debt is a safeguard that evolved gradually
during the early part of the nineteenth century in the various
states of the American Union as a result of the people's
revulsion at the cruel and inhumane practice, sanctioned by
common law, which permitted creditors to cause the
incarceration of debtors who could not pay their debts. At
common law, money judgments arising from actions for the
recovery of a debt or for damages from breach of a contract
could be enforced against the person or body of the debtor by
writ of capias ad satisfaciendum. By means of this writ, a
debtor could be seized and imprisoned at the instance of the
creditor until he makes the satisfaction awarded. As a
consequence of the popular ground swell against such a
barbarous practice, provisions forbidding imprisonment for debt
came to be generally enshrined in the constitutions of various
states of the Union. 17
This humanitarian provision was transported to our shores by
the Americans at the turn of t0he century and embodied in our
organic laws. 18 Later, our fundamental law outlawed not only
imprisonment for debt, but also the infamous practice, native to
our shore, of throwing people in jail for non-payment of
the cedula or poll tax. 19
The reach and scope of this constitutional safeguard have been
the subject of judicial definition, both by our Supreme
Court 20 and by American State courts.21 Mr. Justice Malcolm
speaking for the Supreme Court in Ganaway vs.
Queen, 22 stated: "The 'debt' intended to be covered by the
constitutional guaranty has a well-defined meaning. Organic
provisions relieving from imprisonment for debt, were intended
to prevent commitment of debtors to prison for liabilities arising
from actions ex contractu The inhibition was never meant to
include damages arising in actions ex delicto, for the reason
that damages recoverable therein do not arise from any
contract entered into between the parties but are imposed upon
the defendant for the wrong he has done and are considered
as punishment, nor to fines and penalties imposed by the
courts in criminal proceedings as punishments for crime."
The law involved in Ganaway was not a criminal statute but the
Code of Procedure in Civil Actions (1909) which authorized the
arrest of the defendant in a civil case on grounds akin to those
which justify the issuance of a writ of attachment under our
present Rules of Court, such as imminent departure of the
defendant from the Philippines with intent to defraud his
creditors, or concealment, removal or disposition of properties
in fraud of creditors, etc. The Court, in that case, declared the
detention of the defendant unlawful, being violative of the
constitutional inhibition against imprisonment for debt, and
ordered his release. The Court, however, refrained from
declaring the statutory provision in question unconstitutional.
Closer to the case at bar is People v. Vera Reyes,23 wherein a
statutory provision which made illegal and punishable the
refusal of an employer to pay, when he can do so, the salaries
of his employees or laborers on the fifteenth or last day of
every month or on Saturday every week, was challenged for
being violative of the constitutional prohibition against
imprisonment for debt. The constitutionality of the law in
question was upheld by the Court, it being within the authority
of the legislature to enact such a law in the exercise of the
police power. It was held that "one of the purposes of the law is
to suppress possible abuses on the part of the employers who
hire laborers or employees without paying them the salaries
agreed upon for their services, thus causing them financial
difficulties. "The law was viewed not as a measure to coerce
payment of an obligation, although obviously such could be its
effect, but to banish a practice considered harmful to public
welfare.
IV.Has BP 22 transgressed the constitutional inhibition against
imprisonment for debt? To answer the question, it is necessary
to examine what the statute prohibits and punishes as an
offense. Is it the failure of the maker of the check to pay a
debt? Or is it the making and issuance of a worthless check in
payment of a debt? What is the gravamen of the offense? This
question lies at the heart of the issue before us.
The gravamen of the offense punished by BP 22 is the act of
making and issuing a worthless check or a check that is
dishonored upon its presentation for payment. It is not the non-
payment of an obligation which the law punishes. The law is
not intended or designed to coerce a debtor to pay his debt.
The thrust of the law is to prohibit, under pain of penal
sanctions, the making of worthless checks and putting them in
circulation. Because of its deleterious effects on the public
interest, the practice is proscribed by the law. The law punishes
the act not as an offense against property, but an offense
against public order.
Admittedly, the distinction may seem at first blush to appear
elusive and difficult to conceptualize. But precisely in the failure
to perceive the vital distinction lies the error of those who
challenge the validity of BP 22.
It may be constitutionally impermissible for the legislature to
penalize a person for non-payment of a debt ex contractu But
certainly it is within the prerogative of the lawmaking body to
proscribe certain acts deemed pernicious and inimical to public
welfare. Acts mala in se are not the only acts which the law can
punish. An act may not be considered by society as inherently
wrong, hence, not malum in se but because of the harm that it
inflicts on the community, it can be outlawed and criminally
punished as malum prohibitum. The state can do this in the
exercise of its police power.
The police power of the state has been described as "the most
essential, insistent and illimitable of powers" which enables it to
prohibit all things hurtful to the comfort, safety and welfare of
society. 24 It is a power not emanating from or conferred by the
constitution, but inherent in the state, plenary, "suitably vague
and far from precisely defined, rooted in the conception that
man in organizing the state and imposing upon the government
limitations to safeguard constitutional rights did not intend
thereby to enable individual citizens or group of citizens to
obstruct unreasonably the enactment of such salutary
measures to ensure communal peace, safety, good order and
welfare." 25
The enactment of BP 22 is a declaration by the legislature that,
as a matter of public policy, the making and issuance of a
worthless check is deemed public nuisance to be abated by the
imposition of penal sanctions.
It is not for us to question the wisdom or impolicy of the statute.
It is sufficient that a reasonable nexus exists between means
and end. Considering the factual and legal antecedents that led
to the adoption of the statute, it is not difficult to understand the
public concern which prompted its enactment. It had been
reported that the approximate value of bouncing checks per
day was close to 200 million pesos, and thereafter when
overdrafts were banned by the Central Bank, it averaged
between 50 minion to 80 million pesos a day. 26
By definition, a check is a bill of exchange drawn on a bank and
payable on demand. 27 It is a written order on a bank,
purporting to be drawn against a deposit of funds for the
payment of all events, of a sum of money to a certain person
therein named or to his order or to cash and payable on
demand. 28 Unlike a promissory note, a check is not a mere
undertaking to pay an amount of money. It is an order
addressed to a bank and partakes of a representation that the
drawer has funds on deposit against which the check is drawn,
sufficient to ensure payment upon its presentation to the bank.
There is therefore an element of certainty or assurance that the
instrument wig be paid upon presentation. For this reason,
checks have become widely accepted as a medium of payment
in trade and commerce. Although not legal tender, checks have
come to be perceived as convenient substitutes for currency in
commercial and financial transactions. The basis or foundation
of such perception is confidence. If such confidence is shakes
the usefulness of checks as currency substitutes would be
greatly diminished or may become nit Any practice therefore
tending to destroy that confidence should be deterred for the
proliferation of worthless checks can only create havoc in trade
circles and the banking community.
Recent statistics of the Central Bank show that one-third of the
entire money supply of the country, roughly totalling P32.3
billion, consists of peso demand deposits; the remaining
two. 29 These de deposit thirds consists of currency in
circulation. ma deposits in the banks constitute the funds
against which among others, commercial papers like checks,
are drawn. The magnitude of the amount involved amply
justifies the legitimate concern of the state in preserving the
integrity of the banking system. Flooding the system with
worthless checks is like pouring garbage into the bloodstream
of the nation's economy.
The effects of the issuance of a worthless check transcends the
private interests of the parties directly involved in the
transaction and touches the interests of the community at large.
The mischief it creates is not only a wrong to the payee or
holder, but also an injury to the public. The harmful practice of
putting valueless commercial papers in circulation, multiplied a
thousand fold, can very wen pollute the channels of trade and
commerce, injure the banking system and eventually hurt the
welfare of society and the public interest. As aptly stated — 30
The 'check flasher' does a great deal more than contract a
debt; he shakes the pillars of business; and to my mind, it is a
mistaken charity of judgment to place him in the same category
with the honest man who is unable to pay his debts, and for
whom the constitutional inhibition against' imprisonment for
debt, except in cases of fraud was intended as a shield and not
a sword.
In sum, we find the enactment of BP 22 a valid exercise of the
police power and is not repugnant to the constitutional inhibition
against imprisonment for debt.
This Court is not unaware of the conflicting jurisprudence
obtaining in the various states of the United States on the
constitutionality of the "worthless check" acts. 31 It is needless
to warn that foreign jurisprudence must be taken with abundant
caution. A caveat to be observed is that substantial differences
exist between our statute and the worthless check acts of those
states where the jurisprudence have evolved. One thing to
remember is that BP 22 was not lifted bodily from any existing
statute. Furthermore, we have to consider that judicial
decisions must be read in the context of the facts and the law
involved and, in a broader sense, of the social economic and
political environment—in short, the milieu—under which they
were made. We recognize the wisdom of the old saying that
what is sauce for the goose may not be sauce for the gander.
As stated elsewhere, police power is a dynamic force that
enables the state to meet the exigencies of changing times.
There are occasions when the police power of the state may
even override a constitutional guaranty. For example, there
have been cases wherein we held that the constitutional
provision on non-impairment of contracts must yield to the
police power of the state. 32 Whether the police power may
override the constitutional inhibition against imprisonment for
debt is an issue we do not have to address. This bridge has not
been reached, so there is no occasion to cross it.
We hold that BP 22 does not conflict with the constitutional
inhibition against imprisonment for debt.
V.We need not detain ourselves lengthily in the examination of
the other constitutional objections raised by petitioners, some
of which are rather flimsy.
We find no valid ground to sustain the contention that BP 22
impairs freedom of contract. The freedom of contract which is
constitutionally protected is freedom to enter into "lawful"
contracts. Contracts which contravene public policy are not
lawful. 33 Besides, we must bear in mind that checks can not be
categorized as mere contracts. It is a commercial instrument
which, in this modem day and age, has become a convenient
substitute for money; it forms part of the banking system and
therefore not entirely free from the regulatory power of the
state.
Neither do we find substance in the claim that the statute in
question denies equal protection of the laws or is
discriminatory, since it penalizes the drawer of the check, but
not the payee. It is contended that the payee is just as
responsible for the crime as the drawer of the check, since
without the indispensable participation of the payee by his
acceptance of the check there would be no crime. This
argument is tantamount to saying that, to give equal protection,
the law should punish both the swindler and the swindled. The
petitioners' posture ignores the well-accepted meaning of the
clause "equal protection of the laws." The clause does not
preclude classification of individuals, who may be accorded
different treatment under the law as long as the classification is
no unreasonable or arbitrary. 34
It is also suggested that BP 22 constitutes undue or improper
delegation of legislative powers, on the theory that the offense
is not completed by the sole act of the maker or drawer but is
made to depend on the will of the payee. If the payee does not
present the check to the bank for payment but instead keeps it,
there would be no crime. The logic of the argument stretches to
absurdity the meaning of "delegation of legislative power."
What cannot be delegated is the power to legislate, or the
power to make laws. 35 which means, as applied to the present
case, the power to define the offense sought to be punished
and to prescribe the penalty. By no stretch of logic or
imagination can it be said that the power to define the crime
and prescribe the penalty therefor has been in any manner
delegated to the payee. Neither is there any provision in the
statute that can be construed, no matter how remotely, as
undue delegation of executive power. The suggestion that the
statute unlawfully delegates its enforcement to the offended
party is farfetched.
Lastly, the objection has been raised that Section 9 (2) of
Article VII of the 1973 Constitution was violated by the
legislative body when it enacted BP 22 into law. This
constitutional provision prohibits the introduction of
amendments to a bill during the Third Reading. It is claimed
that during its Third Reading, the bill which eventually became
BP 22 was amended in that the text of the second paragraph of
Section 1 of the bill as adopted on Second Reading was altered
or changed in the printed text of the bill submitted for approval
on Third Reading.
A careful review of the record of the proceedings of the Interim
Batasan on this matter shows that, indeed, there was some
confusion among Batasan Members on what was the exact text
of the paragraph in question which the body approved on
Second Reading. 36 Part of the confusion was due apparently
to the fact that during the deliberations on Second Reading (the
amendment period), amendments were proposed orally and
approved by the body or accepted by the sponsor, hence,
some members might not have gotten the complete text of the
provisions of the bill as amended and approved on Second
Reading. However, it is clear from the records that the text of
the second paragraph of Section 1 of BP 22 is the text which
was actually approved by the body on Second Reading on
February 7, 1979, as reflected in the approved Minutes for that
day. In any event, before the bin was submitted for final
approval on Third Reading, the Interim Batasan created a
Special Committee to investigate the matter, and the
Committee in its report, which was approved by the entire body
on March 22, 1979, stated that "the clause in question was ...
an authorized amendment of the bill and the printed copy
thereof reflects accurately the provision in question as
approved on Second Reading. 37 We therefore, find no merit in
the petitioners' claim that in the enactment of BP 22 the
provisions of Section 9 (2) of Article VIII of the 1973
Constitution were violated.
WHEREFORE, judgment is rendered granting the petition in
G.R. No. 75789 and setting aside the order of the respondent
Judge dated August 19, 1986. The petitions in G.R. Nos.
63419, 66839-42, 71654, 74524-25, 75122-49, 75812-13 and
75765-67 are hereby dismissed and the temporary restraining
order issued in G.R. Nos. 74524-25 is lifted. With costs against
private petitioners.
SO ORDERED.
G.R. No. 156132, CITIBANK, N.A. (Formerly First National
City Bank) and INVESTORS’ FINANCE CORPORATION,
doing business under the name and style of FNCB
Finance, Petitioners, vs. MODESTA R.
SABENIANO, Respondent.
RESOLUTION
On 16 October 2006, this Court promulgated its Decision1 in
the above-entitled case, the dispositive portion of which reads –
IN VIEW OF THE FOREGOING, the instant Petition
is PARTLY GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. No. 51930, dated 26 March 2002, as
already modified by its Resolution, dated 20 November 2002, is
hereby AFFIRMED WITH MODIFICATION, as follows –
1. PNs No. 23356 and 23357 are DECLARED subsisting and
outstanding. Petitioner Citibank is ORDERED to return to
respondent the principal amounts of the said PNs, amounting
to Three Hundred Eighteen Thousand Eight Hundred Ninety-
Seven Pesos and Thirty-Four Centavos (₱318,897.34) and
Two Hundred Three Thousand One Hundred Fifty Pesos
(₱203,150.00), respectively, plus the stipulated interest of
Fourteen and a half percent (14.5%) per annum, beginning 17
March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six
Hundred Thirty Two US Dollars and Ninety-Nine Cents
(US$149,632.99) from respondent’s Citibank-Geneva accounts
to petitioner Citibank in Manila, and the application of the same
against respondent’s outstanding loans with the latter,
is DECLARED illegal, null and void. Petitioner Citibank
is ORDERED to refund to respondent the said amount, or its
equivalent in Philippine currency using the exchange rate at the
time of payment, plus the stipulated interest for each of the
fiduciary placements and current accounts involved, beginning
26 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral
damages in the amount of Three Hundred Thousand Pesos
(₱300,000.00); exemplary damages in the amount of Two
Hundred Fifty Thousand Pesos (₱250,000.00); and attorney’s
fees in the amount of Two Hundred Thousand Pesos
(₱200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the
balance of her outstanding loans, which, from the respective
dates of their maturity to 5 September 1979, was computed to
be in the sum of One Million Sixty-Nine Thousand Eight
Hundred Forty-Seven Pesos and Forty Centavos
(₱1,069,847.40), inclusive of interest. These outstanding loans
shall continue to earn interest, at the rates stipulated in the
corresponding PNs, from 5 September 1979 until payment
thereof.
Subsequent thereto, respondent Modesta R. Sabeniano filed
an Urgent Motion to Clarify and/or Confirm Decision with Notice
of Judgment on 20 October 2006; while, petitioners Citibank,
N.A. and FNCB Finance2 filed their Motion for Partial
Reconsideration of the foregoing Decision on 6 November
2006.
The facts of the case, as determined by this Court in its
Decision, may be summarized as follows.
Respondent was a client of petitioners. She had several
deposits and market placements with petitioners, among which
were her savings account with the local branch of petitioner
Citibank (Citibank-Manila3 ); money market placements with
petitioner FNCB Finance; and dollar accounts with the Geneva
branch of petitioner Citibank (Citibank-Geneva). At the same
time, respondent had outstanding loans with petitioner Citibank,
incurred at Citibank-Manila, the principal amounts aggregating
to ₱1,920,000.00, all of which had become due and
demandable by May 1979. Despite repeated demands by
petitioner Citibank, respondent failed to pay her outstanding
loans. Thus, petitioner Citibank used respondent’s deposits and
money market placements to off-set and liquidate her
outstanding obligations, as follows –
Respondent’s outstanding obligation (principal and interest as
of 26 October 1979) ₱ 2,156,940.58
Less: Proceeds from respondent’s money market placements
with petitioner FNCB Finance (principal and interest as of 5
September 1979) (1,022,916.66)
Deposits in respondent’s bank accounts with petitioner Citibank
(31,079.14)
Proceeds of respondent’s money market placements and dollar
accounts with Citibank-Geneva (peso equivalent as of 26
October 1979) (1,102,944.78)
Balance of respondent’s obligation ₱ 0.00
Respondent, however, denied having any outstanding loans
with petitioner Citibank. She likewise denied that she was duly
informed of the off-setting or compensation thereof made by
petitioner Citibank using her deposits and money market
placements with petitioners. Hence, respondent sought to
recover her deposits and money market placements.
Respondent instituted a complaint for "Accounting, Sum of
Money and Damages" against petitioners, docketed as Civil
Case No. 11336, before the Regional Trial Court (RTC) of
Makati City. After trial proper, which lasted for a decade, the
RTC rendered a Decision4 on 24 August 1995, the dispositive
portion of which reads –
WHEREFORE, in view of all the foregoing, decision is hereby
rendered as follows:
(1) Declaring as illegal, null and void the setoff effected by the
defendant Bank [petitioner Citibank] of plaintiff’s [respondent
Sabeniano] dollar deposit with Citibank, Switzerland, in the
amount of US$149,632.99, and ordering the said defendant
[petitioner Citibank] to refund the said amount to the plaintiff
with legal interest at the rate of twelve percent (12%) per
annum, compounded yearly, from 31 October 1979 until fully
paid, or its peso equivalent at the time of payment;
(2) Declaring the plaintiff [respondent Sabeniano] indebted to
the defendant Bank [petitioner Citibank] in the amount of
₱1,069,847.40 as of 5 September 1979 and ordering the
plaintiff [respondent Sabeniano] to pay said amount, however,
there shall be no interest and penalty charges from the time the
illegal setoff was effected on 31 October 1979;
(3) Dismissing all other claims and counterclaims interposed by
the parties against each other.
Costs against the defendant Bank.
All the parties appealed the afore-mentioned RTC Decision to
the Court of Appeals, docketed as CA-G.R. CV No. 51930. On
26 March 2002, the appellate court promulgated its
Decision,5 ruling entirely in favor of respondent, to wit –
Wherefore, premises considered, the assailed 24 August
1995 Decision of the court a quo is hereby AFFIRMED with
MODIFICATION, as follows:
1. Declaring as illegal, null and void the set-off effected by the
defendant-appellant Bank of the plaintiff-appellant’s dollar
deposit with Citibank, Switzerland, in the amount of
US$149,632.99, and ordering defendant-appellant Citibank to
refund the said amount to the plaintiff-appellant with legal
interest at the rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979 until fully paid, or its
peso equivalent at the time of payment;
2. As defendant-appellant Citibank failed to establish by
competent evidence the alleged indebtedness of plaintiff-
appellant, the set-off of ₱1,069,847.40 in the account of Ms.
Sabeniano is hereby declared as without legal and factual
basis;
3. As defendants-appellants failed to account the following
plaintiff-appellant’s money market placements, savings account
and current accounts, the former is hereby ordered to return
the same, in accordance with the terms and conditions agreed
upon by the contending parties as evidenced by the certificates
of investments, to wit:
(i) Citibank NNPN Serial No. 023356 (Cancels and Supersedes
NNPN No. 22526) issued on 17 March 1977, ₱318,897.34 with
14.50% interest p.a.;
(ii) Citibank NNPN Serial No. 23357 (Cancels and Supersedes
NNPN No. 22528) issued on 17 March 1977, ₱203,150.00 with
14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels and Supersedes
NNPN No. 04952), issued on 02 June 1977, ₱500,000.00 with
17% interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels and Supersedes
NNPN No. 04962), issued on 02 June 1977, ₱500,000.00 with
17% interest per annum;
(v) The Two Million (₱2,000,000.00) money market placements
of Ms. Sabeniano with the Ayala Investment & Development
Corporation (AIDC) with legal interest at the rate of twelve
percent (12%) per annum compounded yearly, from 30
September 1976 until fully paid;
4. Ordering defendants-appellants to jointly and severally pay
the plaintiff-appellant the sum of FIVE HUNDRED THOUSAND
PESOS (₱500,000.00) by way of moral damages, FIVE
HUNDRED THOUSAND PESOS (₱500,000.00) as exemplary
damages, and ONE HUNDRED THOUSAND PESOS
(₱100,000.00) as attorney’s fees.
Acting on petitioners’ Motion for Partial Reconsideration, the
Court of Appeals issued a Resolution,6 dated 20 November
2002, modifying its earlier Decision, thus –
WHEREFORE, premises considered, the instant Motion for
Reconsideration is PARTIALLY GRANTED as Sub-paragraph
(V) paragraph 3 of the assailed Decision’s dispositive portion is
hereby ordered DELETED.
The challenged 26 March 2002 Decision of the Court
is AFFIRMED with MODIFICATION.
Since the Court of Appeals Decision, dated 26 March 2002, as
modified by the Resolution of the same court, dated 20
November 2002, was still principally in favor of respondent,
petitioners filed the instant Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court. After
giving due course to the instant Petition, this Court promulgated
on 16 October 2006 its Decision, now subject of petitioners’
Motion for Partial Reconsideration.1awphi1.net
Among the numerous grounds raised by petitioners in their
Motion for Partial Reconsideration, this Court shall address and
discuss herein only particular points that had not been
considered or discussed in its Decision. Even in consideration
of these points though, this Court remains unconvinced that it
should modify or reverse in any way its disposition of the case
in its earlier Decision.
As to the off-setting or compensation of respondent’s
outstanding loan balance with her dollar deposits in Citibank-
Geneva
Petitioners’ take exception to the following findings made by
this Court in its Decision, dated 16 October 2006, disallowing
the off-setting or compensation of the balance of respondent’s
outstanding loans using her dollar deposits in Citibank-Geneva
– an indemnity for expenses of exchange or transportation to the
Without the Declaration of Pledge, petitioner Citibank had no
authority to demand the remittance of respondent’s dollar
accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under
Article 1278 of the Civil Code since, petitioner Citibank itself
admitted that Citibank-Geneva is a distinct and separate entity.
As for the dollar accounts, respondent was the creditor and
Citibank-Geneva is the debtor; and as for the outstanding
loans, petitioner Citibank was the creditor and respondent was
the debtor. The parties in these transactions were evidently not
the principal creditor of each other.
Petitioners maintain that respondent’s Declaration of Pledge,
by virtue of which she supposedly assigned her dollar accounts
with Citibank-Geneva as security for her loans with petitioner
Citibank, is authentic and, thus, valid and binding upon
respondent. Alternatively, petitioners aver that even without
said Declaration of Pledge, the off-setting or compensation
made by petitioner Citibank using respondent’s dollar accounts
with Citibank-Geneva to liquidate the balance of her
outstanding loans with Citibank-Manila was expressly
authorized by respondent herself in the promissory notes (PNs)
she signed for her loans, as well as sanctioned by Articles 1278
to 1290 of the Civil Code. This alternative argument is
anchored on the premise that all branches of petitioner Citibank
in the Philippines and abroad are part of a single worldwide
corporate entity and share the same juridical personality. In
connection therewith, petitioners deny that they ever admitted
that Citibank-Manila and Citibank-Geneva are distinct and
separate entities.
Petitioners call the attention of this Court to the following
provision found in all of the PNs7 executed by respondent for
her loans –
At or after the maturity of this note, or when same becomes
due under any of the provisions hereof, any money, stocks,
bonds, or other property of any kind whatsoever, on deposit or
otherwise, to the credit of the undersigned on the books of
CITIBANK, N.A. in transit or in their possession, may without
notice be applied at the discretion of the said bank to the full or
partial payment of this note.
It is the petitioners’ contention that the term "Citibank, N.A."
used therein should be deemed to refer to all branches of
petitioner Citibank in the Philippines and abroad; thus, giving
petitioner Citibank the authority to apply as payment for the
PNs even respondent’s dollar accounts with Citibank-Geneva.
Still proceeding from the premise that all branches of petitioner
Citibank should be considered as a single entity, then it should
not matter that the respondent obtained the loans from
Citibank-Manila and her deposits were with Citibank-Geneva.
Respondent should be considered the debtor (for the loans)
and creditor (for her deposits) of the same entity, petitioner
Citibank. Since petitioner Citibank and respondent were
principal creditors of each other, in compliance with the
requirements under Article 1279 of the Civil Code,8 then the
former could have very well used off-setting or compensation to
extinguish the parties’ obligations to one another. And even
without the PNs, off-setting or compensation was still
authorized because according to Article 1286 of the Civil Code,
"Compensation takes place by operation of law, even though
the debts may be payable at different places, but there shall be
place of payment."
Pertinent provisions of Republic Act No. 8791, otherwise known
as the General Banking Law of 2000, governing bank branches
are reproduced below –
SEC. 20. Bank Branches. – Universal or commercial banks
may open branches or other offices within or outside the
Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent
laws.
A bank may, subject to prior approval of the Monetary Board,
use any or all of its branches as outlets for the presentation
and/or sale of the financial products of its allied undertaking or
its investment house units.
A bank authorized to establish branches or other offices shall
be responsible for all business conducted in such branches and
offices to the same extent and in the same manner as though
such business had all been conducted in the head office. A
bank and its branches and offices shall be treated as one unit.
xxxx
SEC. 72. Transacting Business in the Philippines. – The entry
of foreign banks in the Philippines through the establishment of
branches shall be governed by the provisions of the Foreign
Banks Liberalization Act.
The conduct of offshore banking business in the Philippines
shall be governed by the provisions of Presidential Decree No.
1034, otherwise known as the "Offshore Banking System
Decree."
xxxx
SEC. 74. Local Branches of Foreign Banks. – In case of a
foreign bank which has more than one (1) branch in the
Philippines, all such branches shall be treated as one (1) unit
for the purpose of this Act, and all references to the Philippine
branches of foreign banks shall be held to refer to such units.
SEC. 75. Head Office Guarantee. – In order to provide effective
protection of the interests of the depositors and other creditors
of Philippine branches of a foreign bank, the head office of
such branches shall fully guarantee the prompt payment of all
liabilities of its Philippine branch.
Residents and citizens of the Philippines who are creditors of a
branch in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch in accordance
with existing laws.
Republic Act No. 7721, otherwise known as the Foreign Banks
Liberalization Law, lays down the policies and regulations
specifically concerning the establishment and operation of local
branches of foreign banks. Relevant provisions of the said
statute read –
Sec. 2. Modes of Entry. - The Monetary Board may authorize
foreign banks to operate in the Philippine banking system
through any of the following modes of entry: (i) by acquiring,
purchasing or owning up to sixty percent (60%) of the voting
stock of an existing bank; (ii) by investing in up to sixty percent
(60%) of the voting stock of a new banking subsidiary
incorporated under the laws of the Philippines; or (iii) by
establishing branches with full banking authority: Provided,
That a foreign bank may avail itself of only one (1) mode of
entry: Provided, further, That a foreign bank or a Philippine
corporation may own up to a sixty percent (60%) of the voting
stock of only one (1) domestic bank or new banking subsidiary.
Sec. 5. Head Office Guarantee. - The head office of foreign
bank branches shall guarantee prompt payment of all liabilities
of its Philippine branches.
It is true that the afore-quoted Section 20 of the General
Banking Law of 2000 expressly states that the bank and its
branches shall be treated as one unit. It should be pointed out,
however, that the said provision applies to a universal9 or
commercial bank,10 duly established and organized as a
Philippine corporation in accordance with Section 8 of the same
statute,11 and authorized to establish branches within or outside
the Philippines.
The General Banking Law of 2000, however, does not make
the same categorical statement as regards to foreign banks
and their branches in the Philippines. What Section 74 of the
said law provides is that in case of a foreign bank with several
branches in the country, all such branches shall be treated as
one unit. As to the relations between the local branches of a
foreign bank and its head office, Section 75 of the General
Banking Law of 2000 and Section 5 of the Foreign Banks
Liberalization Law provide for a "Home Office Guarantee," in
which the head office of the foreign bank shall guarantee
prompt payment of all liabilities of its Philippine branches. While
the Home Office Guarantee is in accord with the principle that
these local branches, together with its head office, constitute
but one legal entity, it does not necessarily support the view
that said principle is true and applicable in all circumstances.
The Home Office Guarantee is included in Philippine statutes
clearly for the protection of the interests of the depositors and
other creditors of the local branches of a foreign bank.12 Since
the head office of the bank is located in another country or
state, such a guarantee is necessary so as to bring the head
office within Philippine jurisdiction, and to hold the same
answerable for the liabilities of its Philippine branches. Hence,
the principle of the singular identity of that the local branches
and the head office of a foreign bank are more often invoked by
the clients in order to establish the accountability of the head
office for the liabilities of its local branches. It is under such
attendant circumstances in which the American authorities and
jurisprudence presented by petitioners in their Motion for Partial
Reconsideration were rendered.
Now the question that remains to be answered is whether the
foreign bank can use the principle for a reverse purpose, in
order to extend the liability of a client to the foreign bank’s
Philippine branch to its head office, as well as to its branches in
other countries. Thus, if a client obtains a loan from the foreign
bank’s Philippine branch, does it absolutely and automatically
make the client a debtor, not just of the Philippine branch, but
also of the head office and all other branches of the foreign
bank around the world? This Court rules in the negative.
There being a dearth of Philippine authorities and jurisprudence
on the matter, this Court, just as what petitioners have done,
turns to American authorities and jurisprudence. American
authorities and jurisprudence are significant herein considering
that the head office of petitioner Citibank is located in New
York, United States of America (U.S.A.).
Unlike Philippine statutes, the American legislation explicitly
defines the relations among foreign branches of an American
bank. Section 25 of the United States Federal Reserve
Act13 states that –
Every national banking association operating foreign branches
shall conduct the accounts of each foreign branch
independently of the accounts of other foreign branches
established by it and of its home office, and shall at the end of
each fiscal period transfer to its general ledger the profit or loss
accrued at each branch as a separate item.
Contrary to petitioners’ assertion that the accounts of Citibank-
Manila and Citibank-Geneva should be deemed as a single
account under its head office, the foregoing provision mandates
that the accounts of foreign branches of an American bank
shall be conducted independently of each other. Since the
head office of petitioner Citibank is in the U.S.A., then it is
bound to treat its foreign branches in accordance with the said
provision. It is only at the end of its fiscal period that the bank is
required to transfer to its general ledger the profit or loss
accrued at each branch, but still reporting it as a separate item.
It is by virtue of this provision that the Circuit Court of Appeals
of New York declared in Pan-American Bank and Trust Co. v.
National City Bank of New York14 that a branch is not merely a
teller’s window; it is a separate business entity.
The circumstances in the case of McGrath v. Agency of
Chartered Bank of India, Australia & China15 are closest to the
one at bar. In said case, the Chartered Bank had branches in
several countries, including one in Hamburg, Germany and
another in New York, U.S.A., and yet another in London, United
Kingdom. The New York branch entered in its books credit in
favor of four German firms. Said credit represents collections
made from bills of exchange delivered by the four German
firms. The same four German firms subsequently became
indebted to the Hamburg branch. The London branch then
requested for the transfer of the credit in the name of the
German firms from the New York branch so as to be applied or
setoff against the indebtedness of the same firms to the
Hamburg branch. One of the question brought before the U.S.
District Court of New York was "whether or not the debts and
the alleged setoffs thereto are mutual," which could be
answered by determining first whether the New York and
Hamburg branches of Chartered Bank are individual business
entities or are one and the same entity. In denying the right of
the Hamburg branch to setoff, the U.S. District Court
ratiocinated that –
The structure of international banking houses such as
Chartered bank defies one rigorous description. Suffice it to say
for present analysis, branches or agencies of an
international bank have been held to be independent
entities for a variety of purposes (a) deposits payable only at
branch where made; Mutaugh v. Yokohama Specie Bank, Ltd.,
1933, 149 Misc. 693, 269 N.Y.S. 65; Bluebird Undergarment
Corp. v. Gomez, 1931, 139 Misc. 742, 249 N.Y.S. 319; (b)
checks need be honored only when drawn on branch where
deposited; Chrzanowska v. Corn Exchange Bank, 1916, 173
App. Div. 285, 159 N.Y.S. 385, affirmed 1919, 225 N.Y. 728,
122 N.E. 877; subpoena duces tecum on foreign bank’s record
barred; In re Harris, D.C.S.D.N.Y. 1939, 27 F. Supp. 480; (d) a
foreign branch separate for collection of forwarded paper; Pan-
American Bank and Trust Company v. National City Bank of
New York, 2 Cir., 1925, 6 F. 2d 762, certiorari denied 1925, 269
U.S. 554, 46 S. Ct. 18, 70 L. Ed. 408. Thus in law there is
nothing innately unitary about the organization of
international banking institutions.
Defendant, upon its oral argument and in its brief, relies heavily
on Sokoloff v. National City Bank of New York,1928, 250 N.Y.
69, 164 N.E. 745, as authority for the proposition that
Chartered Bank, not the Hamburg or New York Agency, is
ultimately responsible for the amounts owing its German
customers and, conversely, it is to Chartered Bank that the
German firms owe their obligations. The Sokoloff case, aside
from its violently different fact situation, is centered on the legal
problem of default of payment and consequent breach of
contract by a branch bank. It does not stand for the principle
that in every instance an international bank with branches
is but one legal entity for all purposes. The defendant
concedes in its brief (p. 15) that there are purposes for which
the various agencies and branches of Chartered Bank may be
treated in law as separate entities. I fail to see the applicability
of Sokoloffeither as a guide to or authority for the resolution of
this problem. The facts before me and the cases
catalogued supra lend weight to the view that we are dealing
here with Agencies independent of one another.
xxxx
I hold that for instant purposes the Hamburg Agency and
defendant were independent business entities, and the
attempted setoff may not be utilized by defendant against its
debt to the German firms obligated to the Hamburg Agency.
Going back to the instant Petition, although this Court
concedes that all the Philippine branches of petitioner Citibank
should be treated as one unit with its head office, it cannot be
persuaded to declare that these Philippine branches are
likewise a single unit with the Geneva branch. It would be
stretching the principle way beyond its intended purpose.
Therefore, this Court maintains its original position in the
Decision that the off-setting or compensation of respondent’s
loans with Citibank-Manila using her dollar accounts with
Citibank-Geneva cannot be effected. The parties cannot be
considered principal creditor of the other. As for the dollar
accounts, respondent was the creditor and Citibank-Geneva
was the debtor; and as for the outstanding loans, petitioner
Citibank, particularly Citibank-Manila, was the creditor and
respondent was the debtor. Since legal compensation was not
possible, petitioner Citibank could only use respondent’s dollar
accounts with Citibank-Geneva to liquidate her loans if she had
expressly authorized it to do so by contract.
Respondent cannot be deemed to have authorized the use of
her dollar deposits with Citibank-Geneva to liquidate her loans
with petitioner Citibank when she signed the PNs16 for her
loans which all contained the provision that –
At or after the maturity of this note, or when same becomes
due under any of the provisions hereof, any money, stocks,
bonds, or other property of any kind whatsoever, on deposit or
otherwise, to the credit of the undersigned on the books of
CITIBANK, N.A. in transit or in their possession, may without
notice be applied at the discretion of the said bank to the full or
partial payment of this note.
As has been established in the preceding discussion, "Citibank,
N.A." can only refer to the local branches of petitioner Citibank
together with its head office. Unless there is any showing that
respondent understood and expressly agreed to a more far-
reaching interpretation, the reference to Citibank, N.A. cannot
be extended to all other branches of petitioner Citibank all over
the world. Although theoretically, books of the branches form
part of the books of the head office, operationally and
practically, each branch maintains its own books which shall
only be later integrated and balanced with the books of the
head office. Thus, it is very possible to identify and segregate
the books of the Philippine branches of petitioner Citibank from
those of Citibank-Geneva, and to limit the authority granted for
application as payment of the PNs to respondent’s deposits in
the books of the former.
Moreover, the PNs can be considered a contract of adhesion,
the PNs being in standard printed form prepared by petitioner
Citibank. Generally, stipulations in a contract come about after
deliberate drafting by the parties thereto, there are certain
contracts almost all the provisions of which have been drafted
only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of
the party is the affixing of his signature or his "adhesion"
thereto. This being the case, the terms of such contract are to
be construed strictly against the party which prepared it.17
As for the supposed Declaration of Pledge of respondent’s
dollar accounts with Citibank-Geneva as security for the loans,
this Court stands firm on its ruling that the non-production
thereof is fatal to petitioners’ cause in light of respondent’s
claim that her signature on such document was a forgery. It
bears to note that the original of the Declaration of Pledge is
with Citibank-Geneva, a branch of petitioner Citibank. As
between respondent and petitioner Citibank, the latter has
better access to the document. The constant excuse forwarded
by petitioner Citibank that Citibank-Geneva refused to return
possession of the original Declaration of Pledge to Citibank-
Manila only supports this Court’s finding in the preceding
paragraphs that the two branches are actually operating
separately and independently of each other.
Further, petitioners keep playing up the fact that respondent, at
the beginning of the trial, refused to give her specimen
signatures to help establish whether her signature on the
Declaration of Pledge was indeed forged. Petitioners seem to
forget that subsequently, respondent, on advice of her new
counsel, already offered to cooperate in whatever manner so
as to bring the original Declaration of Pledge before the RTC
for inspection. The exchange of the counsels for the opposing
sides during the hearing on 24 July 1991 before the RTC
reveals the apparent willingness of respondent’s counsel to
undertake whatever course of action necessary for the
production of the contested document, and the evasive, non-
committal, and uncooperative attitude of petitioners’ counsel.18
Lastly, this Court’s ruling striking down the Declaration of
Pledge is not entirely based on respondent’s allegation of
forgery. In its Decision, this Court already extensively
discussed why it found the said Declaration of Pledge highly
suspicious and irregular, to wit –
First of all, it escapes this Court why petitioner Citibank took
care to have the Deeds of Assignment of the PNs notarized,
yet left the Declaration of Pledge unnotarized. This Court would
think that petitioner Citibank would take greater cautionary
measures with the preparation and execution of the Declaration
of Pledge because it involved respondent’s "all present and
future fiduciary placements" with a Citibank branch in another
country, specifically, in Geneva, Switzerland. While there is no
express legal requirement that the Declaration of Pledge had to
be notarized to be effective, even so, it could not enjoy the
same prima facie presumption of due execution that is
extended to notarized documents, and petitioner Citibank must
discharge the burden of proving due execution and authenticity
of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date
when the Declaration of Pledge was actually executed. The
photocopy of the Declaration of Pledge submitted by petitioner
Citibank before the RTC was undated. It presented only a
photocopy of the pledge because it already forwarded the
original copy thereof to Citibank-Geneva when it requested for
the remittance of respondent’s dollar accounts pursuant
thereto. Respondent, on the other hand, was able to secure a
copy of the Declaration of Pledge, certified by an officer of
Citibank-Geneva, which bore the date 24 September 1979.
Respondent, however, presented her passport and plane
tickets to prove that she was out of the country on the said date
and could not have signed the pledge. Petitioner Citibank
insisted that the pledge was signed before 24 September 1979,
but could not provide an explanation as to how and why the
said date was written on the pledge. Although Mr. Tan testified
that the Declaration of Pledge was signed by respondent
personally before him, he could not give the exact date when
the said signing took place. It is important to note that the copy
of the Declaration of Pledge submitted by the respondent to the
RTC was certified by an officer of Citibank-Geneva, which had
possession of the original copy of the pledge. It is dated 24
September 1979, and this Court shall abide by the presumption
that the written document is truly dated. Since it is undeniable
that respondent was out of the country on 24 September 1979,
then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The
pledge was in a standard printed form. It was constituted in
favor of Citibank, N.A., otherwise referred to therein as the
Bank. It should be noted, however, that in the space which
should have named the pledgor, the name of petitioner Citibank
was typewritten, to wit –
The pledge right herewith constituted shall secure all claims
which the Bank now has or in the future acquires
against Citibank, N.A., Manila (full name and address of the
Debtor), regardless of the legal cause or the transaction (for
example current account, securities transactions, collections,
credits, payments, documentary credits and collections) which
gives rise thereto, and including principal, all contractual and
penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and
pledgee being the same entity. Was a mistake made by
whoever filled-out the form? Yes, it could be a possibility.
Nonetheless, considering the value of such a document, the
mistake as to a significant detail in the pledge could only be
committed with gross carelessness on the part of petitioner
Citibank, and raised serious doubts as to the authenticity and
due execution of the same. The Declaration of Pledge had
passed through the hands of several bank officers in the
country and abroad, yet, surprisingly and implausibly, no one
noticed such a glaring mistake.
Lastly, respondent denied that it was her signature on the
Declaration of Pledge. She claimed that the signature was a
forgery. When a document is assailed on the basis of forgery,
the best evidence rule applies –
Basic is the rule of evidence that when the subject of inquiry is
the contents of a document, no evidence is admissible other
than the original document itself except in the instances
mentioned in Section 3, Rule 130 of the Revised Rules of
Court. Mere photocopies of documents are inadmissible
pursuant to the best evidence rule. This is especially true
when the issue is that of forgery.
As a rule, forgery cannot be presumed and must be proved by
clear, positive and convincing evidence and the burden of proof
lies on the party alleging forgery. The best evidence of a forged
signature in an instrument is the instrument itself reflecting the
alleged forged signature. The fact of forgery can only be
established by a comparison between the alleged forged
signature and the authentic and genuine signature of the
person whose signature is theorized upon to have been forged.
Without the original document containing the alleged forged
signature, one cannot make a definitive comparison which
would establish forgery. A comparison based on a mere xerox
copy or reproduction of the document under controversy cannot
produce reliable results.
Respondent made several attempts to have the original copy of
the pledge produced before the RTC so as to have it examined
by experts. Yet, despite several Orders by the RTC, petitioner
Citibank failed to comply with the production of the original
Declaration of Pledge. It is admitted that Citibank-Geneva had
possession of the original copy of the pledge. While petitioner
Citibank in Manila and its branch in Geneva may be separate
and distinct entities, they are still incontestably related, and
between petitioner Citibank and respondent, the former had
more influence and resources to convince Citibank-Geneva to
return, albeit temporarily, the original Declaration of Pledge.
Petitioner Citibank did not present any evidence to convince
this Court that it had exerted diligent efforts to secure the
original copy of the pledge, nor did it proffer the reason why
Citibank-Geneva obstinately refused to give it back, when such
document would have been very vital to the case of petitioner
Citibank. There is thus no justification to allow the presentation
of a mere photocopy of the Declaration of Pledge in lieu of the
original, and the photocopy of the pledge presented by
petitioner Citibank has nil probative value. In addition, even if
this Court cannot make a categorical finding that respondent’s
signature on the original copy of the pledge was forged, it is
persuaded that petitioner Citibank willfully suppressed the
presentation of the original document, and takes into
consideration the presumption that the evidence willfully
suppressed would be adverse to petitioner Citibank if
produced.
As far as the Declaration of Pledge is concerned, petitioners
failed to submit any new evidence or argument that was not
already considered by this Court when it rendered its Decision.
As to the value of the dollar deposits in Citibank-Geneva
ordered refunded to respondent
In case petitioners are still ordered to refund to respondent the
amount of her dollar accounts with Citibank-Geneva, petitioners
beseech this Court to adjust the nominal values of respondent’s
dollar accounts and/or her overdue peso loans by using the
values of the currencies stipulated at the time the obligations
were established in 1979, to address the alleged inequitable
consequences resulting from the extreme and extraordinary
devaluation of the Philippine currency that occurred in the
course of the Asian crisis of 1997. Petitioners base their
request on Article 1250 of the Civil Code which reads, "In case
an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary."
It is well-settled that Article 1250 of the Civil Code becomes
applicable only when there is extraordinary inflation or deflation
of the currency. Inflation has been defined as the sharp
increase of money or credit or both without a corresponding
increase in business transaction. There is inflation when there
is an increase in the volume of money and credit relative to
available goods resulting in a substantial and continuing rise in
the general price level.19 In Singson v. Caltex (Philippines),
Inc.,20 this Court already provided a discourse as to what
constitutes as extraordinary inflation or deflation of currency,
thus –
We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in
the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation.
An example of extraordinary inflation, as cited by the Court
in Filipino Pipe and Foundry Corporation vs. NAWASA, supra,
is that which happened to the deutschmark in 1920. Thus:
"More recently, in the 1920s, Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was
4.2 to the U.S. dollar. By May of the same year, it had stumbled
to 62 to the U.S. dollar. And as prices went up rapidly, so that
by October 1923, it had reached 4.2 trillion to the U.S. dollar!"
(Bernardo M. Villegas & Victor R. Abola, Economics, An
Introduction [Third Edition]).
As reported, "prices were going up every week, then every day,
then every hour. Women were paid several times a day so that
they could rush out and exchange their money for something of
value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising
prices by throwing their money out of the windows to their
waiting wives, who would rush to unload the nearly worthless
paper. A postage stamp cost millions of marks and a loaf of
bread, billions." (Sidney Rutberg, "The Money Balloon", New
York: Simon and Schuster, 1975, p. 19, cited in "Economics,
An Introduction" by Villegas & Abola, 3rd ed.)
The supervening of extraordinary inflation is never assumed.
The party alleging it must lay down the factual basis for the
application of Article 1250.
Thus, in the Filipino Pipe case, the Court acknowledged that
the voluminous records and statistics submitted by plaintiff-
appellant proved that there has been a decline in the
purchasing power of the Philippine peso, but this downward fall
cannot be considered "extraordinary" but was simply a
universal trend that has not spared our country. Similarly,
in Huibonhoa vs. Court of Appeals, the Court dismissed
plaintiff-appellant's unsubstantiated allegation that the Aquino
assassination in 1983 caused building and construction costs
to double during the period July 1983 to February 1984.
In Serra vs. Court of Appeals, the Court again did not consider
the decline in the peso's purchasing power from 1983 to 1985
to be so great as to result in an extraordinary inflation.
Like the Serra and Huibonhoa cases, the instant case also
raises as basis for the application of Article 1250 the Philippine
economic crisis in the early 1980s --- when, based on
petitioner's evidence, the inflation rate rose to 50.34% in 1984.
We hold that there is no legal or factual basis to support
petitioner's allegation of the existence of extraordinary inflation
during this period, or, for that matter, the entire time frame of
1968 to 1983, to merit the adjustment of the rentals in the lease
contract dated July 16, 1968. Although by petitioner's evidence
there was a decided decline in the purchasing power of the
Philippine peso throughout this period, we are hard put to treat
this as an "extraordinary inflation" within the meaning and intent
of Article 1250.
Rather, we adopt with approval the following observations of
the Court of Appeals on petitioner's evidence, especially the
NEDA certification of inflation rates based on consumer price
index:
xxx (a) from the period 1966 to 1986, the official inflation rate
never exceeded 100% in any single year; (b) the highest official
inflation rate recorded was in 1984 which reached only 50.34%;
(c) over a twenty one (21) year period, the Philippines
experienced a single-digit inflation in ten (10) years (i.e., 1966,
1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986);
(d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979,
1980, 1981, 1982, 1984 and 1989) when the Philippines
experienced double-digit inflation rates, the average of those
rates was only 20.88%; (e) while there was a decline in the
purchasing power of the Philippine currency from the period
1966 to 1986, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the Philippine peso
which is a characteristic of most currencies.
"Erosion" is indeed an accurate description of the trend of
decline in the value of the peso in the past three to four
decades. Unfortunate as this trend may be, it is certainly
distinct from the phenomenon contemplated by Article 1250.
Moreover, this Court has held that the effects of extraordinary
inflation are not to be applied without an official declaration
thereof by competent authorities.
The burden of proving that there had been extraordinary
inflation or deflation of the currency is upon the party that
alleges it. Such circumstance must be proven by competent
evidence, and it cannot be merely assumed. In this case,
petitioners presented no proof as to how much, for instance,
the price index of goods and services had risen during the
intervening period.21 All the information petitioners provided
was the drop of the U.S. dollar-Philippine peso exchange rate
by 17 points from June 1997 to January 1998. While the said
figure was based on the statistics of the Bangko Sentral ng
Pilipinas (BSP), it is also significant to note that the BSP did not
categorically declare that the same constitute as an
extraordinary inflation. The existence of extraordinary inflation
must be officially proclaimed by competent authorities, and the
only competent authority so far recognized by this Court to
make such an official proclamation is the BSP.22
Neither can this Court, by merely taking judicial notice of the
Asian currency crisis in 1997, already declare that there had
been extraordinary inflation. It should be recalled that the
Philippines likewise experienced economic crisis in the 1980s,
yet this Court did not find that extraordinary inflation took place
during the said period so as to warrant the application of Article
1250 of the Civil Code.
Furthermore, it is incontrovertible that Article 1250 of the Civil
Code is based on equitable considerations. Among the maxims
of equity are (1) he who seeks equity must do equity, and (2)
he who comes into equity must come with clean hands. The
latter is a frequently stated maxim which is also expressed in
the principle that he who has done inequity shall not have
equity.23 Petitioner Citibank, hence, cannot invoke Article 1250
of the Civil Code because it does not come to court with clean
hands. The delay in the recovery24 by respondent of her dollar
accounts with Citibank-Geneva was due to the unlawful act of
petitioner Citibank in using the same to liquidate respondent’s
loans. Petitioner Citibank even attempted to justify the off-
setting or compensation of respondent’s loans using her dollar
accounts with Citibank-Geneva by the presentation of a highly
suspicious and irregular, and even possibly forged, Declaration
of Pledge.
The damage caused to respondent of the deprivation of her
dollar accounts for more than two decades is unquestionably
relatively more extensive and devastating, as compared to
whatever damage petitioner Citibank, an international banking
corporation with undoubtedly substantial capital, may have
suffered for respondent’s non-payment of her loans. It must
also be remembered that petitioner Citibank had already
considered respondent’s loans paid or liquidated by 26 October
1979 after it had fully effected compensation thereof using
respondents deposits and money market placements. All this
time, respondent’s dollar accounts are unlawfully in the
possession of and are being used by petitioner Citibank for its
business transactions. In the meantime, respondent’s
businesses failed and her properties were foreclosed because
she was denied access to her funds when she needed them
most. Taking these into consideration, respondent’s dollar
accounts with Citibank-Geneva must be deemed to be
subsisting and continuously deposited with petitioner Citibank
all this while, and will only be presently withdrawn by
respondent. Therefore, petitioner Citibank should refund to
respondent the U.S. $149,632.99 taken from her Citibank-
Geneva accounts, or its equivalent in Philippine currency using
the exchange rate at the time of payment, plus the stipulated
interest for each of the fiduciary placements and current
accounts involved, beginning 26 October 1979.
As to respondent’s Motion to Clarify and/or Confirm Decision
with Notice of Judgment
Respondent, in her Motion, is of the mistaken notion that the
Court of Appeals Decision, dated 26 March 2002, as modified
by the Resolution of the same court, dated 20 November 2002,
would be implemented or executed together with this Court’s
Decision.
This Court clarifies that its affirmation of the Decision of the
Court of Appeals, as modified, is only to the extent that it
recognizes that petitioners had liabilities to the respondent.
However, this Court’s Decision modified that of the appellate
court’s by making its own determination of the specific liabilities
of the petitioners to respondent and the amounts thereof; as
well as by recognizing that respondent also had liabilities to
petitioner Citibank and the amount thereof.
Thus, for purposes of execution, the parties need only refer to
the dispositive portion of this Court’s Decision, dated 16
October 2006, should it already become final and executory,
without any further modifications.
As the last point, there is no merit in respondent’s Motion for
this Court to already declare its Decision, dated 16 October
2006, final and executory. A judgment becomes final and
executory by operation of law and, accordingly, the finality of
the judgment becomes a fact upon the lapse of the
reglementary period without an appeal or a motion for new trial
or reconsideration being filed.25 This Court cannot arbitrarily
disregard the reglementary period and declare a judgment final
and executory upon the mere motion of one party, for to do so
will be a culpable violation of the right of the other parties to
due process.
IN VIEW OF THE FOREGOING, petitioners’ Motion for Partial
Reconsideration of this Court’s Decision, dated 16 October
2006, and respondent’s Motion for this Court to declare the
same Decision already final and executory, are
both DENIED for lack of merit.
SO ORDERED.
G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN
TIBAJIA, petitioners, vs. THE HONORABLE COURT OF
APPEALS and EDEN TAN, respondents.
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia,
are before this Court assailing the decision * of respondent
appellate court dated 24 April 1991 in CA-G.R. SP No. 24164
denying their petition for certiorari prohibition, and injunction
which sought to annul the order of Judge Eutropio Migriño of
the Regional Trial Court, Branch 151, Pasig, Metro Manila in
Civil Case No. 54863 entitled "Eden Tan vs. Sps. Norberto and
Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
Case No. 54863 was a suit for collection of a sum of money
filed by Eden Tan against the Tibajia spouses. A writ of
attachment was issued by the trial court on 17 August 1987
and on 17 September 1987, the Deputy Sheriff filed a return
stating that a deposit made by the Tibajia spouses in the
Regional Trial Court of Kalookan City in the amount of Four
Hundred Forty Two Thousand Seven Hundred and Fifty Pesos
(P442,750.00) in another case, had been garnished by him. On
10 March 1988, the Regional Trial Court, Branch 151 of Pasig,
Metro Manila rendered its decision in Civil Case No. 54863 in
favor of the plaintiff Eden Tan, ordering the Tibajia spouses to
pay her an amount in excess of Three Hundred Thousand
Pesos (P300,000.00). On appeal, the Court of Appeals
modified the decision by reducing the award of moral and
exemplary damages. The decision having become final, Eden
Tan filed the corresponding motion for execution and
thereafter, the garnished funds which by then were on deposit
with the cashier of the Regional Trial Court of Pasig, Metro
Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to
Deputy Sheriff Eduardo Bolima the total money judgment in the
following form:
Cashier's Check P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment
made by the Tibajia spouses and instead insisted that the
garnished funds deposited with the cashier of the Regional
Trial Court of Pasig, Metro Manila be withdrawn to satisfy the
judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. On 29
January 1991, the motion was denied by the trial court on the
ground that payment in cashier's check is not payment in legal
tender and that payment was made by a third party other than
the defendant. A motion for reconsideration was denied on 8
February 1991. Thereafter, the spouses Tibajia filed a petition
for certiorari, prohibition and injunction in the Court of Appeals.
The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal
tender as required by Republic Act No. 529. The motion for
reconsideration was denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the
following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO.
014021 IN THE AMOUNT OF P262,750.00 TENDERED BY
PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT,
IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY
VALIDLY REFUSE THE TENDER OF PAYMENT PARTLY IN
CHECK AND PARTLY IN CASH MADE BY PETITIONERS,
THRU AURORA VITO AND COUNSEL, FOR THE
SATISFACTION OF THE MONETARY OBLIGATION OF
PETITIONERS-SPOUSES.1
The only issue to be resolved in this case is whether or not
payment by means of check (even by cashier's check) is
considered payment in legal tender as required by the Civil
Code, Republic Act No. 529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a
cashier's check of the Bank of the Philippine Islands,
undoubtedly a bank of good standing and reputation, and which
was a crossed check marked "For Payee's Account Only" and
payable to private respondent Eden Tan, is considered legal
tender, payment with which operates to discharge their
monetary obligation.2 Petitioners, to support their contention,
cite the case of New Pacific Timber and Supply Co., Inc. v.
Señeris3 where this Court held through Mr. Justice
Hermogenes Concepcion, Jr. that "It is a well-known and
accepted practice in the business sector that a cashier's check
is deemed as cash".
The provisions of law applicable to the case at bar are the
following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which
provides:
Sec. 1. Every provision contained in, or made with respect to,
any obligation which purports to give the obligee the right to
require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not any
such provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin
or currency which at the time of payment is legal tender for
public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central
Bank Act) which provides:
Sec. 63. Legal character — Checks representing deposit
money do not have legal tender power and their acceptance in
the payment of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this
petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of
Appeals4 and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court,5 this Court held that —
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor.
The ruling in these two (2) cases merely applies the statutory
provisions which lay down the rule that a check is not legal
tender and that a creditor may validly refuse payment by check,
whether it be a manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in
the Philippine Airlines case6 to support their cause. The
dissenting opinion however does not in any way support the
contention that a check is legal tender but, on the contrary,
states that "If the PAL checks in question had not been
encashed by Sheriff Reyes, there would be no payment by PAL
and, consequently, no discharge or satisfaction of its judgment
obligation."7 Moreover, the circumstances in the Philippine
Airlines case are quite different from those in the case at bar for
in that case the checks issued by the judgment debtor were
made payable to the sheriff, Emilio Z. Reyes, who encashed
the checks but failed to deliver the proceeds of said
encashment to the judgment creditor.
In the more recent case of Fortunado vs. Court of
Appeals,8 this Court stressed that, "We are not, by this
decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision
is hereby AFFIRMED, with costs against the petitioners.
SO ORDERED.
G.R. No. L-49188, January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs. HON. COURT OF APPEALS, HON. JUDGE RICARDO D.
GALANO, Court of First Instance of Manila, Branch XIII,
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First
Instance, Manila, and AMELIA TAN, respondents.
Behind the simple issue of validity of an alias writ of execution
in this case is a more fundamental question. Should the Court
allow a too literal interpretation of the Rules with an open
invitation to knavery to prevail over a more discerning and just
approach? Should we not apply the ancient rule of statutory
construction that laws are to be interpreted by the spirit which
vivifies and not by the letter which killeth?
This is a petition to review on certiorari the decision of the
Court of Appeals in CA-G.R. No. 07695 entitled "Philippine
Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et
al.", dismissing the petition for certiorari against the order of the
Court of First Instance of Manila which issued an alias writ of
execution against the petitioner.
The petition involving the alias writ of execution had its
beginnings on November 8, 1967, when respondent Amelia
Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the Court of First
Instance of Manila. The case was docketed as Civil Case No.
71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then
presided over by the late Judge Jesus P. Morfe rendered
judgment on June 29, 1972, in favor of private respondent
Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL)
as follows:
WHEREFORE, judgment is hereby rendered, ordering the
defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount
of P75,000.00 as actual damages, with legal interest thereon
from plaintiffs extra-judicial demand made by the letter of July
20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount
of P18,200.00, representing the unrealized profit of 10%
included in the contract price of P200,000.00 plus legal interest
thereon from July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the
amount of P20,000.00 as and for moral damages, with legal
interest thereon from July 20, 1 967;4. On the sixth cause of
action, to pay to the plaintiff the amount of P5,000.00 damages
as and for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's
counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of
Appeals. The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision,
the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is
condemned to pay plaintiff the sum of P25,000.00 as damages
and P5,000.00 as attorney's fee, judgment is affirmed, with
costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial
court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly
opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution
denying the respondent's motion for reconsideration for lack of
merit.
No further appeal having been taken by the parties, the
judgment became final and executory and on May 31, 1977,
judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on
September 2,1977, respondent Amelia Tan filed a motion
praying for the issuance of a writ of execution of the judgment
rendered by the Court of Appeals. On October 11, 1977, the
trial court, presided over by Judge Galano, issued its order of
execution with the corresponding writ in favor of the
respondent. The writ was duly referred to Deputy Sheriff Emilio
Z. Reyes of Branch 13 of the Court of First Instance of Manila
for enforcement.
Four months later, on February 11, 1978, respondent Amelia
Tan moved for the issuance of an alias writ of execution stating
that the judgment rendered by the lower court, and affirmed
with modification by the Court of Appeals, remained
unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the
motion for the issuance of an alias writ of execution stating that
it had already fully paid its obligation to plaintiff through the
deputy sheriff of the respondent court, Emilio Z. Reyes, as
evidenced by cash vouchers properly signed and receipted by
said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of
the alias writ for being premature, ordering the executing sheriff
Emilio Z. Reyes to appear with his return and explain the
reason for his failure to surrender the amounts paid to him by
petitioner PAL. However, the order could not be served upon
Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias
writ of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to
withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978,
the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to
Withdraw 'Motion for Partial Alias Writ of Execution with
Substitute Motion for Alias Writ of Execution is hereby granted,
and the motion for partial alias writ of execution is considered
withdrawn.
Let an Alias Writ of Execution issue against the defendant for
the fall satisfaction of the judgment rendered. Deputy Sheriff
Jaime K. del Rosario is hereby appointed Special Sheriff for the
enforcement thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first
alias writ of execution issued on the same day directing Special
Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when
respondent Amelia Tan made an extra-judicial demand through
a letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash
the alias writ of execution stating that no return of the writ had
as yet been made by Deputy Sheriff Emilio Z. Reyes and that
the judgment debt had already been fully satisfied by the
petitioner as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution, Deputy Sheriff
Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served
a notice of garnishment on the depository bank of petitioner,
Far East Bank and Trust Company, Rosario Branch, Binondo,
Manila, through its manager and garnished the petitioner's
deposit in the said bank in the total amount of P64,408.00 as of
May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:
I.AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED
WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY
THE IMPLEMENTING OFFICER.
II.PAYMENT OF JUDGMENT TO THE IMPLEMENTING
OFFICER AS DIRECTED IN THE WRIT OF EXECUTION
CONSTITUTES SATISFACTION OF JUDGMENT.
III.INTEREST IS NOT PAYABLE WHEN THE DECISION IS
SILENT AS TO THE PAYMENT THEREOF.
IV.SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY
OF PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL
OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return
of the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's
decision with approval:
The issuance of the questioned alias writ of execution under
the circumstances here obtaining is justified because even with
the absence of a Sheriffs return on the original writ, the
unalterable fact remains that such a return is incapable of being
obtained (sic) because the officer who is to make the said
return has absconded and cannot be brought to the Court
despite the earlier order of the court for him to appear for this
purpose. (Order of Feb. 21, 1978, Annex C, Petition).
Obviously, taking cognizance of this circumstance, the order of
May 11, 1978 directing the issuance of an alias writ was
therefore issued. (Annex D. Petition). The need for such a
return as a condition precedent for the issuance of an alias writ
was justifiably dispensed with by the court below and its action
in this regard meets with our concurrence. A contrary view will
produce an abhorent situation whereby the mischief of an
erring officer of the court could be utilized to impede indefinitely
the undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final
judgment in this case should not indeed be permitted to
become illusory or incapable of execution for an indefinite and
over extended period, as had already transpired. (Rollo, pp. 35-
36)
Judicium non debet esse illusorium; suum effectum habere
debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of the
suit and is very aptly called the life of the law (Ipekdjian
Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19
SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of
procedure. Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to inform
the court and the parties, of any and all actions taken under the
writ of execution. Where such information can be established in
some other manner, the absence of an executing officer's
return will not preclude a judgment from being treated as
discharged or being executed through an alias writ of execution
as the case may be. More so, as in the case at bar. Where the
return cannot be expected to be forthcoming, to require the
same would be to compel the enforcement of rights under a
judgment to rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is not
satisfied, a plaintiff is entitled to other writs of execution
(Government of the Philippines v. Echaus and Gonzales, 71
Phil. 318). It is a well known legal maxim that he who cannot
prosecute his judgment with effect, sues his case vainly.
More important in the determination of the propriety of the trial
court's issuance of an alias writ of execution is the issue of
satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did
the payment made to the absconding sheriff by check in his
name operate to satisfy the judgment debt? The Court rules
that the plaintiff who has won her case should not be adjudged
as having sued in vain. To decide otherwise would not only
give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia
Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as rightfully
hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from
the start, before 1967, without need of her going to court to
enforce her rights. And all because PAL did not issue the
checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to
the absconding sheriff by check in his name did not operate as
a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Article 1240 of
the Civil Code provides:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or
any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446,
111 ALR 65). Payment made to one having apparent authority
to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for the creditor, it
will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by
an officer authorized by law to accept it will, therefore, satisfy
the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra;
Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person
so authorized is deemed payment to the creditor. Under
ordinary circumstances, payment by the judgment debtor in the
case at bar, to the sheriff should be valid payment to extinguish
the judgment debt.
There are circumstances in this case, however, which compel a
different conclusion.
The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were
not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
parties so agree, a debtor has no rights, except at his own peril,
to substitute something in lieu of cash as medium of payment
of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA
200,47 Am. St. Rep. 402). Consequently, unless authorized to
do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of an
obligation under a judgment being executed. Strictly speaking,
the acceptance by the sheriff of the petitioner's checks, in the
case at bar, does not, per se, operate as a discharge of the
judgment debt.
Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by
itself, operate as payment (See. 189, Act 2031 on Negs. Insts.;
Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7
Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A
check, whether a manager's check or ordinary cheek, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge
the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil
Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan
and not the Sheriff's, there would have been no payment. After
dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value
for what had been awarded her. Because the checks were
drawn in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there
would have been payment in full legal contemplation. The
reasoning is logical but is it valid and proper? Logic has its
limits in decision making. We should not follow rulings to their
logical extremes if in doing so we arrive at unjust or absurd
results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain
cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to
the wrong party. The situation is entirely different where a
Sheriff seizes a car, a tractor, or a piece of land. Logic often
has to give way to experience and to reality. Having paid with
checks, PAL should have done so properly.
Payment in money or cash to the implementing officer may be
deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers.
Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his
hands decides to abscond.
As a protective measure, therefore, the courts encourage the
practice of payments by cheek provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved,
escrow arrangements with a bank and carefully supervised by
the court would be the safer procedure. Actual transfer of funds
takes place within the safety of bank premises. These practices
are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a
particular payee are made out in the name of another. Making
the checks payable to the judgment creditor would have
prevented the encashment or the taking of undue advantage by
the sheriff, or any person into whose hands the checks may
have fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the
private party respondent Amelia Tan, the petitioner corporation,
utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting
consequences of the checks drawn, nevertheless, in this
instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the
name of the errant Sheriff and not the name of the rightful
payee. Petitioner thereby created a situation which permitted
the said Sheriff to personally encash said checks and
misappropriate the proceeds thereof to his exclusive personal
benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note of
states as follows:
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible
by his act of confidence must bear the loss. (Blondeau, et al. v.
Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself,
the judgment debtor whose act made possible the loss had but
itself to blame.
The attention of this Court has been called to the bad practice
of a number of executing officers, of requiring checks in
satisfaction of judgment debts to be made out in their own
names. If a sheriff directs a judgment debtor to issue the
checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff
immediately to the court which ordered the execution or to the
Supreme Court for appropriate disciplinary action. Fees,
commissions, and salaries are paid through regular channels.
This improper procedure also allows such officers, who have
sixty (60) days within which to make a return, to treat the
moneys as their personal finds and to deposit the same in their
private accounts to earn sixty (60) days interest, before said
finds are turned over to the court or judgment creditor (See
Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily,
such officers could put up the defense that said checks had
been issued to them in their private or personal capacity.
Without a receipt evidencing payment of the judgment debt, the
misappropriation of finds by such officers becomes clean and
complete. The practice is ingenious but evil as it unjustly
enriches court personnel at the expense of litigants and the
proper administration of justice. The temptation could be far
greater, as proved to be in this case of the absconding sheriff.
The correct and prudent thing for the petitioner was to have
issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a
person other than the intended payee, without the latter's
agreement or consent, are as many as the ways that an artful
mind could concoct to get around the safeguards provided by
the law on negotiable instruments. An angry litigant who loses
a case, as a rule, would not want the winning party to get what
he won in the judgment. He would think of ways to delay the
winning party's getting what has been adjudged in his favor.
We cannot condone that practice especially in cases where the
courts and their officers are involved. We rule against the
petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. — The officer must
enforce an execution of a money judgment by levying on all the
property, real and personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution, or on a sufficient
amount of such property, if they be sufficient, and selling the
same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be
considered satisfied and therefore the orders of the respondent
judge granting the alias writ of execution may not be
pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a
judgment to be executed there is the requisite of payment by
the officer to the judgment creditor, or his attorney, so much of
the proceeds as will satisfy the judgment and none such
payment had been concededly made yet by the absconding
Sheriff to the private respondent Amelia Tan. The ultimate and
essential step to complete the execution of the judgment not
having been performed by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction
of a judgment. Under unusual circumstances as those
obtaining in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or
judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d
360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200;
Black's Law Dictionary), whereas the satisfaction of a judgment
is the payment of the amount of the writ, or a lawful tender
thereof, or the conversion by sale of the debtor's property into
an amount equal to that due, and, it may be done otherwise
than upon an execution (Section 47, Rule 39). Levy and
delivery by an execution officer are not prerequisites to the
satisfaction of a judgment when the same has already been
realized in fact (Section 47, Rule 39). Execution is for the
sheriff to accomplish while satisfaction of the judgment is for
the creditor to achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including delivery of
the proceeds of his levy on the debtor's property to satisfy the
judgment debt. It is but to stress that the implementing officer's
duty should not stop at his receipt of payments but must
continue until payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent court's
pronouncement on the inclusion of interests to be recovered
under the alias writ of execution. This logically follows from our
ruling that PAL is liable for both the lost checks and interest.
The respondent court's decision in CA-G.R. No. 51079-R does
not totally supersede the trial court's judgment in Civil Case No.
71307. It merely modified the same as to the principal amount
awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
hereby DISMISSED. The judgment of the respondent Court of
Appeals is AFFIRMED and the trial court's issuance of the alias
writ of execution against the petitioner is upheld without
prejudice to any action it should take against the errant sheriff
Emilio Z. Reyes. The Court Administrator is ordered to follow
up the actions taken against Emilio Z. Reyes.
SO ORDERED.
[G.R. No. 72110. November 16, 1990.] ROMAN CATHOLIC
BISHOP OF MALOLOS, INC., Petitioner, v. INTERMEDIATE
APPELLATE COURT, and ROBES-FRANCISCO REALTY
AND DEVELOPMENT CORPORATION, Respondents.
Rodrigo Law Office for Petitioner. Antonio P. Barredo and
Napoleon M. Malinas for Private Respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; TENDER OF PAYMENT;
CANNOT BE PRESUMED BY MERE INFERENCE FROM
SURROUNDING CIRCUMSTANCES. — We agree with the
petitioner that a finding that the private respondent had
sufficient available funds on or before the grace period for the
payment of its obligation does not constitute proof of tender of
payment by the latter for its obligation within the said period.
Tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the
obligee for the former’s obligation and demanding that the latter
accept the same. Thus, tender of payment cannot be presumed
by a mere inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the capacity
or ability of the obligor to fulfill his part of the bargain. But
whether or not the obligor avails himself of such funds to settle
his outstanding account remains to be proven by independent
and credible evidence. Tender of payment presupposes not
only that the obligor is able, ready, and willing, but more so, in
the act of performing his obligation. Ab posse ad actu non vale
illatio. "A proof that an act could have been done is no proof
that it was actually done." The respondent court was therefore
in error to have concluded from the sheer proof of sufficient
available funds on the part of the private respondent to meet
more than the total obligation within the grace period, the
alleged truth of tender of payment. The same is a classic case
of non-sequitur.
2. ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY PAYMENT
OF A CERTIFIED PERSONAL CHECK. — With regard to the
third issue, granting arguendo that we would rule affirmatively
on the two preceding issues, the case of the private respondent
still can not succeed in view of the fact that the latter used a
certified personal check which is not legal tender nor the
currency stipulated, and therefore, can not constitute valid
tender of payment. The first paragraph of Art. 1249 of the Civil
Code provides that "the payment of debts in money shall be
made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender
in the Philippines. The Court en banc in the recent case of
Philippine Airlines v. Court of Appeals, (Promulgated on
January 30, 1990) G.R. No. L-49188, stated thus: Since a
negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself,
operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.;
Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7
Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A
check, whether a manager’s check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor. Hence, where the tender of payment by the
private respondent was not valid for failure to comply with the
requisite payment in legal tender or currency stipulated within
the grace period and as such, was validly refused receipt by
the petitioner, the subsequent consignation did not operate to
discharge the former from its obligation to the latter.
3. ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE THE
FORCE OF LAW BETWEEN THE CONTRACTING PARTIES.
— Art. 1159 of the Civil Code of the Philippines provides that
"obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith." And unless the stipulations in said contract are
contrary to law, morals, good customs, public order, or public
policy, the same are binding as between the parties. (Article
1409, Civil Code, par. 1). What the private respondent should
have done if it was indeed desirous of complying with its
obligations would have been to pay the petitioner within the
grace period and obtain a receipt of such payment duly issued
by the latter. Thereafter, or, allowing a reasonable time, the
private respondent could have demanded from the petitioner
the execution of the necessary documents. In case the
petitioner refused, the private respondent could have had
always resorted to judicial action for the legitimate enforcement
of its right. For the failure of the private respondent to
undertake this more judicious course of action, it alone shall
suffer the consequences.
4. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF TRIAL
COURT AS A RULE, SHOULD BE ACCORDED FULL
CONSIDERATION AND RESPECT. — On the contrary, the
respondent court finds itself remiss in overlooking or taking
lightly the more important findings of fact made by the trial court
which we have earlier mentioned and which as a rule, are
entitled to great weight on appeal and should be accorded full
consideration and respect and should not be disturbed unless
for strong and cogent reasons. (Natividad del Rosario Vda. de
Alberto v. Court of Appeals, G.R. 29759, May 18, 1989;
Matabuena v. Court of Appeals, G.R. 76542, May 5, 1989).
5. ID.; SUPREME COURT; INSTANCES WHEN THE COURT
HAS TO REVIEW THE EVIDENCE. — While the Court is not a
trier of facts, yet, when the findings of fact of the Court of
Appeals are at variance with those of the trial court, (Robleza v.
Court of Appeals, G.R. 80364, June 28, 1989) or when the
inference of the Court of Appeals from its findings of fact is
manifestly mistaken, (Reynolds Philippine Corporation v. Court
of Appeals, G.R. 38187, January 17, 1987) the Court has to
review the evidence in order to arrive at the correct findings
based on the record.
DECISION
This is a petition for review on certiorari which seeks the
reversal and setting aside of the decision 1 of the Court of
Appeals, 2 the dispositive portion of which reads:chanrobles
WHEREFORE, the decision appealed from is hereby reversed
and set aside and another one entered for the plaintiff ordering
the defendant-appellee Roman Catholic Bishop of Malolos, Inc.
to accept the balance of P124,000.00 being paid by plaintiff-
appellant and thereafter to execute in favor of Robes-Francisco
Realty Corporation a registerable Deed of Absolute Sale over
20,655 square meters portion of that parcel of land situated in
San Jose del Monte, Bulacan described in OCT No. 575 (now
Transfer Certificates of Title Nos. T-169493, 169494,169495
and 169496) of the Register of Deeds of Bulacan. In case of
refusal of the defendant to execute the Deed of Final Sale, the
clerk of court is directed to execute the said document. Without
pronouncement as to damages and attorney’s fees. Costs
against the defendant-appellee. 3
The case at bar arose from a complaint filed by the private
respondent, then plaintiff, against the petitioner, then
defendant, in the Court of First Instance (now Regional Trial
Court) of Bulacan, at Sta. Maria, Bulacan, 4 for specific
performance with damages, based on a contract 5 executed on
July 7, 1971.
The property subject matter of the contract consists of a 20,655
sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of
land covered by Original Certificate of Title No. 575 of the
Province of Bulacan, issued and registered in the name of the
petitioner which it sold to the private respondent for and in
consideration of P123,930.00.chanrobles virtual lawlibrary
The crux of the instant controversy lies in the compliance or
non-compliance by the private respondent with the provision for
payment to the petitioner of the principal balance of
P100,000.00 and the accrued interest of P24,000.00 within the
grace period.
A chronological narration of the antecedent facts is as
follows:chanrob1es virtual 1aw library
On July 7, 1971, the subject contract over the land in question
was executed between the petitioner as vendor and the private
respondent through its then president, Mr. Carlos F. Robes, as
vendee, stipulating for a downpayment of P23,930.00 and the
balance of P100,000.00 plus 12% interest per annum to be
paid within four (4) years from execution of the contract, that is,
on or before July 7, 1975. The contract likewise provides for
cancellation, forfeiture of previous payments, and
reconveyance of the land in question in case the private
respondent would fail to complete payment within the said
period.
On March 12, 1973, the private respondent, through its new
president, Atty. Adalia Francisco, addressed a letter 6 to Father
Vasquez, parish priest of San Jose Del Monte, Bulacan,
requesting to be furnished with a copy of the subject contract
and the supporting documents.
On July 17, 1975, admittedly after the expiration of the
stipulated period for payment, the same Atty. Francisco wrote
the petitioner a formal request 7 that her company be allowed
to pay the principal amount of P100,000.00 in three (3) equal
installments of six (6) months each with the first installment and
the accrued interest of P24,000.00 to be paid immediately upon
approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty.
Carmelo Fernandez, formally denied the said request of the
private respondent, but granted the latter a grace period of five
(5) days from the receipt of the denial 8 to pay the total balance
of P124,000.00, otherwise, the provisions of the contract
regarding cancellation, forfeiture, and reconveyance would be
implemented.

On August 4, 1975, the private respondent, through its
president, Atty. Francisco, wrote 9 the counsel of the petitioner
requesting an extension of 30 days from said date to fully settle
its account. The counsel for the petitioner, Atty. Fernandez,
received the said letter on the same day. Upon consultation
with the petitioner in Malolos, Bulacan, Atty. Fernandez, as
instructed, wrote the private respondent a letter 10 dated
August 7, 1975 informing the latter of the denial of the request
for an extension of the grace period.
Consequently, Atty. Francisco, the private respondent’s
president, wrote a letter 11 dated August 22, 1975, directly
addressed to the petitioner, protesting the alleged refusal of the
latter to accept tender of payment purportedly made by the
former on August 5, 1975, the last day of the grace period. In
the same letter of August 22, 1975, received on the following
day by the petitioner, the private respondent demanded the
execution of a deed of absolute sale over the land in question
and after which it would pay its account in full, otherwise,
judicial action would be resorted to.chanrobles.com.ph : virtual
law library
On August 27, 1975, the petitioner’s counsel, Atty. Fernandez,
wrote a reply 12 to the private respondent stating the refusal of
his client to execute the deed of absolute sale due to its
(private respondent’s) failure to pay its full obligation. Moreover,
the petitioner denied that the private respondent had made any
tender of payment whatsoever within the grace period. In view
of this alleged breach of contract, the petitioner cancelled the
contract and considered all previous payments forfeited and the
land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the
contending parties have conflicting versions on the main
question of tender of payment.
The trial court, in its ratiocination, preferred not to give
credence to the evidence presented by the private Respondent.
According to the trial court:chanrob1es virtual 1aw library
. . . What made Atty. Francisco suddenly decide to pay
plaintiff’s obligation on August 5, 1975, go to defendant’s office
at Malolos, and there tender her payment, when her request of
August 4, 1975 had not yet been acted upon until August 7,
1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then
there would have been no need for her to write defendant on
August 4, 1975 to request an extension of time. Indeed, Atty.
Francisco’s claim that she made a tender of payment on
August 5, 1975 — such alleged act, considered in relation to
the circumstances both antecedent and subsequent thereto,
being not in accord with the normal pattern of human conduct
— is not worthy of credence. 13
The trial court likewise noted the inconsistency in the testimony
of Atty. Francisco, president of the private respondent, who
earlier testified that a certain Mila Policarpio accompanied her
on August 5, 1975 to the office of the petitioner. Another
person, however, named Aurora Oracion, was presented to
testify as the secretary-companion of Atty. Francisco on that
same occasion.
Furthermore, the trial court considered as fatal the failure of
Atty. Francisco to present in court the certified personal check
allegedly tendered as payment or, at least, its xerox copy, or
even bank records thereof. Finally, the trial court found that the
private respondent had insufficient funds available to fulfill the
entire obligation considering that the latter, through its
president, Atty. Francisco, only had a savings account deposit
of P64,840.00, and although the latter had a money-market
placement of P300,000.00, the same was to mature only after
the expiration of the 5-day grace period.
Based on the above considerations, the trial court rendered a
decision in favor of the petitioner, the dispositive portion of
which reads:chanrobles virtual lawlibrary
WHEREFORE, finding plaintiff to have failed to make out its
case, the court hereby declares the subject contract cancelled
and plaintiff’s downpayment of P23,930.00 forfeited in favor of
defendant, and hereby dismisses the complaint; and on the
counterclaim, the Court orders plaintiff to pay defendant.
(1) Attorney’s fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED. 14
Not satisfied with the said decision, the private respondent
appealed to the respondent Intermediate Appellate Court (now
Court of Appeals) assigning as reversible errors, among others,
the findings of the trial court that the available funds of the
private respondent were insufficient and that the latter did not
effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial
court, essentially relies on the following findings:chanrob1es
virtual 1aw library
. . . We are convinced from the testimony of Atty. Adalia
Francisco and her witnesses that in behalf of the plaintiff-
appellant they have a total available sum of P364,840.00 at her
and at the plaintiff’s disposal on or before August 4, 1975 to
answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant
had only about P64,840.00 in savings deposit on or before
August 5, 1975, a sum not enough to pay the outstanding
account of P124,000.00. The plaintiff-appellant, through Atty.
Francisco proved and the trial court even acknowledged that
Atty. Adalia Francisco had about P300,000.00 in money market
placement. The error of the trial court has in concluding that the
money market placement of P300,000.00 was out of reach of
Atty. Francisco. But as testified to by Mr. Catalino Estrella, a
representative of the Insular Bank of Asia and America, Atty.
Francisco could withdraw anytime her money market
placement and place it at her disposal, thus proving her
financial capability of meeting more than the whole of
P124,000.00 then due per contract. This situation, We believe,
proves the truth that Atty. Francisco apprehensive that her
request for a 30-day grace period would be denied, she
tendered payment on August 4, 1975 which offer defendant
through its representative and counsel refused to receive. . .15
(Emphasis supplied)
In other words, the respondent court, finding that the private
respondent had sufficient available funds, ipso facto concluded
that the latter had tendered payment. Is such conclusion
warranted by the facts proven? The petitioner submits that it is
not.cralawnad
Hence, this petition. 16
The petitioner presents the following issues for
resolution:chanrob1es virtual 1aw library
x x x documents for the deed of absolute sale had not been
A. Is a finding that private respondent had sufficient available
funds on or before the grace period for the payment of its
obligation proof that it (private respondent) did tender of (sic)
payment for its said obligation within said period?
x x x the herein VENDEE, the VENDOR shall cause the execution of
B. Is it the legal obligation of the petitioner (as vendor) to
execute a deed of absolute sale in favor of the private
respondent (as vendee) before the latter has actually paid the
complete consideration of the sale — where the contract
between and executed by the parties stipulates —
"That upon complete payment of the agreed consideration by
the herein VENDEE, the VENDOR shall cause the execution of
a Deed of Absolute Sale in favor of the VENDEE."cralaw
x x x.
C. Is an offer of a check a valid tender of payment of an
obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency? 17
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that
a finding that the private respondent had sufficient available
funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by the
latter for its obligation within the said period. Tender of payment
involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the
former’s obligation and demanding that the latter accept the
same. Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most, sufficiency
of available funds is only affirmative of the capacity or ability of
the obligor to fulfill his part of the bargain. But whether or not
the obligor avails himself of such funds to settle his outstanding
account remains to be proven by independent and credible
evidence. Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in the act of
performing his obligation. Ab posse ad actu non vale illatio. "A
proof that an act could have been done is no proof that it was
actually done."cralaw virtua1aw library
The respondent court was therefore in error to have concluded
from the sheer proof of sufficient available funds on the part of
the private respondent to meet more than the total obligation
within the grace period, the alleged truth of tender of payment.
The same is a classic case of non-sequitur.chanrobles virtual
lawlibrary
On the contrary, the respondent court finds itself remiss in
overlooking or taking lightly the more important findings of fact
made by the trial court which we have earlier mentioned and
which as a rule, are entitled to great weight on appeal and
should be accorded full consideration and respect and should
not be disturbed unless for strong and cogent reasons. 18
While the Court is not a trier of facts, yet, when the findings of
fact of the Court of Appeals are at variance with those of the
trial court, 19 or when the inference of the Court of Appeals
from its findings of fact is manifestly mistaken, 20 the Court has
to review the evidence in order to arrive at the correct findings
based on the record.
Apropos the second issue raised, although admittedly the
prepared, the subject contract clearly provides that the full
payment by the private respondent is an a priori condition for
the execution of the said documents by the petitioner.
That upon complete payment of the agreed consideration by
a Deed of Absolute Sale in favor of the VENDEE. 21
The private respondent is therefore in estoppel to claim
otherwise as the latter did in the testimony in cross-examination
of its president, Atty. Francisco, which reads:chanrob1es virtual
1aw library
Q Now, you mentioned, Atty. Francisco, that you wanted the
defendant to execute the final deed of sale before you would
given (sic) the personal certified check in payment of your
balance, is that correct?
A Yes, sir. 22
x x x
Art. 1159 of the Civil Code of the Philippines provides that
"obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith." And unless the stipulations in said contract are
contrary to law, morals, good customs, public order, or public
policy, the same are binding as between the parties.23
What the private respondent should have done if it was indeed
desirous of complying with its obligations would have been to
pay the petitioner within the grace period and obtain a receipt
of such payment duly issued by the latter. Thereafter, or,
allowing a reasonable time, the private respondent could have
demanded from the petitioner the execution of the necessary
documents. In case the petitioner refused, the private
respondent could have had always resorted to judicial action
for the legitimate enforcement of its right. For the failure of the
private respondent to undertake this more judicious course of
action, it alone shall suffer the
consequences.chanrobles.com:cralaw:red
With regard to the third issue, granting arguendo that we would
rule affirmatively on the two preceding issues, the case of the
private respondent still can not succeed in view of the fact that
the latter used a certified personal check which is not legal
tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art.
1249 of the Civil Code provides that "the payment of debts in
money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v.
Court of Appeals, 24 G.R. No. L-49188, stated
thus:chanrob1es virtual 1aw library
Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by
itself, operate as payment (citing Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan London Co. v. American
Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L.
60, 61). A check, whether a manager’s check or ordinary
check, is not legal tender, and an offer of a check in payment of
a debt is not a valid tender of payment and may be refused
receipt by the obligee or creditor.

Hence, where the tender of payment by the private respondent
was not valid for failure to comply with the requisite payment in
legal tender or currency stipulated within the grace period and
as such, was validly refused receipt by the petitioner, the
subsequent consignation did not operate to discharge the
former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate exercise
of its rights pursuant to the subject contract, did validly order
therefore the cancellation of the said contract, the forfeiture of
the previous payment, and the reconveyance ipso facto of the
land in question.chanrobles lawlibrary : rednad
WHEREFORE, the petition for review on certiorari is
GRANTED and the DECISION of the respondent court
promulgated on April 25, 1985 is hereby SET ASIDE and
ANNULLED and the DECISION of the trial court dated May 25,
1981 is hereby REINSTATED. Costs against the
private Respondent.
SO ORDERED.
G.R. No. L-22405 June 30, 1971
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
vs. MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant. Office of the Solicitor
General Arturo A. Alafriz, Assistant Solicitor General Antonio G.
Ibarra and Attorney Concepcion Torrijos-Agapinan for
defendants-appellees.
An appeal from a decision of the Court of First Instance of
Manila dismissing the complaint filed by the Philippine
Education Co., Inc. against Mauricio A. Soriano, Enrico
Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from
the Manila Post Office ten (10) money orders of P200.00 each
payable to E.P. Montinola withaddress at Lucena, Quezon.
After the postal teller had made out money ordersnumbered
124685, 124687-124695, Montinola offered to pay for them
with a private checks were not generally accepted in payment
of money orders, the teller advised him to see the Chief of the
Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10)
money orders without the knowledge of the teller.
On the same date, April 18, 1958, upon discovery of the
disappearance of the unpaid money orders, an urgent message
was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay
anyone of the money orders aforesaid if presented for
payment. The Bank of America received a copy of said notice
three days later.
On April 23, 1958 one of the above-mentioned money orders
numbered 124688 was received by appellant as part of its
sales receipts. The following day it deposited the same with the
Bank of America, and one day thereafter the latter cleared it
with the Bureau of Posts and received from the latter its face
value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of
the Money Order Division of the Manila Post Office, acting for
and in behalf of his co-appellee, Postmaster Enrico Palomar,
notified the Bank of America that money order No. 124688
attached to his letter had been found to have been irregularly
issued and that, in view thereof, the amount it represented had
been deducted from the bank's clearing account. For its part,
on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice
thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster
General to reconsider the action taken by his office deducting
the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied. So was appellant's
subsequent request that the matter be referred to the Secretary
of Justice for advice. Thereafter, appellant elevated the matter
to the Secretary of Public Works and Communications, but the
latter sustained the actions taken by the postal officers.
In connection with the events set forth above, Montinola was
charged with theft in the Court of First Instance of Manila
(Criminal Case No. 43866) but after trial he was acquitted on
the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees
in the Municipal Court of Manila praying for judgment as
follows:
WHEREFORE, plaintiff prays that after hearing defendants be
ordered:
(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing
account the sum of P200.00 represented by postal money
order No. 124688, or in the alternative indemnify the plaintiff in
the same amount with interest at 8-½% per annum from
September 27, 1961, which is the rate of interest being paid by
plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly
and severally, actual and moral damages in the amount of
P1,000.00 or in such amount as will be proved and/or
determined by this Honorable Court: exemplary damages in the
amount of P1,000.00, attorney's fees of P1,000.00, and the
costs of action.
Plaintiff also prays for such other and further relief as may be
deemed just and equitable.
On November 17, 1962, after the parties had submitted the
stipulation of facts reproduced at pages 12 to 15 of the Record
on Appeal, the above-named court rendered judgment as
follows:
WHEREFORE, judgment is hereby rendered, ordering the
defendants to countermand the notice given to the Bank of
America on September 27, 1961, deducting from said Bank's
clearing account the sum of P200.00 representing the amount
of postal money order No. 124688, or in the alternative, to
indemnify the plaintiff in the said sum of P200.00 with interest
thereon at the rate of 8-½% per annum from September 27,
1961 until fully paid; without any pronouncement as to cost and
attorney's fees.
The case was appealed to the Court of First Instance of Manila
where, after the parties had resubmitted the same stipulation of
facts, the appealed decision dismissing the complaint, with
costs, was rendered.
The first, second and fifth assignments of error discussed in
appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal
money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated
October 26, 1948 signed by the Director of Posts and
addressed to all banks with a clearing account with the Post
Office, and that money orders, once issued, create a
contractual relationship of debtor and creditor, respectively,
between the government, on the one hand, and the remitters
payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after
statutes in force in the United States. For this reason, ours are
generally construed in accordance with the construction given
in the United States to their own postal statutes, in the absence
of any special reason justifying a departure from this policy or
practice. The weight of authority in the United States is that
postal money orders are not negotiable instruments (Bolognesi
vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank,
30 Fed. 912), the reason behind this rule being that, in
establishing and operating a postal money order system, the
government is not engaging in commercial transactions but
merely exercises a governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions
imposed upon money orders by postal laws and regulations are
inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not
more than one endorsement; payment of money orders may be
withheld under a variety of circumstances (49 C.J. 1153).
Of particular application to the postal money order in question
are the conditions laid down in the letter of the Director of Posts
of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its
depositors. Among others, the condition is imposed that "in
cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the,
corresponding amount will have to be refunded to the
Postmaster, Manila, who reserves the right to deduct the value
thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the
bank to continue enjoying the facilities theretofore enjoyed by
its depositors, were accepted by the Bank of America. The
latter is therefore bound by them. That it is so is clearly referred
from the fact that, upon receiving advice that the amount
represented by the money order in question had been
deducted from its clearing account with the Manila Post Office,
it did not file any protest against such action.
Moreover, not being a party to the understanding existing
between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms
and conditions thereof on the ground that the letter setting forth
the terms and conditions aforesaid is void because it was not
issued by a Department Head in accordance with Sec. 79 (B)
of the Revised Administrative Code. In reality, however, said
legal provision does not apply to the letter in question because
it does not provide for a department regulation but merely sets
down certain conditions upon the privilege granted to the Bank
of Amrica to accept and pay postal money orders presented for
payment at the Manila Post Office. Such being the case, it is
clear that the Director of Posts had ample authority to issue it
pursuant to Sec. 1190 of the Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve
the issues raised in the third and fourth assignments of error.
WHEREFORE, the appealed decision being in accordance with
law, the same is hereby affirmed with costs.
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF
APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents. Bito, Lozada, Ortega & Castillo for
petitioners. Nepomuceno, Hofileña & Guingona for private.
This petition for review on certiorari impugns and seeks the
reversal of the decision promulgated by respondent court on
March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with
modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the
court a quo and adopted by respondent court, appears of
record:
1. On various dates, defendant, a commercial banking
institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts
and Statement of Issues, Original Records, p. 207; Defendant's
Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
——— ————
Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time
(CTDs) to herein plaintiff in connection with his purchased of
fuel products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr.
Timoteo Tiangco, the Sucat Branch Manger, that he lost all the
certificates of time deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired
replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-
50).
4. On March 18, 1982, Angel dela Cruz executed and delivered
to defendant bank the required Affidavit of Loss (Defendant's
Exhibit 281). On the basis of said affidavit of loss, 280
replacement CTDs were issued in favor of said depositor
(Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and
obtained a loan from defendant bank in the amount of Eight
Hundred Seventy Five Thousand Pesos (P875,000.00). On the
same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among
others, that he (de la Cruz) surrenders to defendant bank "full
control of the indicated time deposits from and after date" of the
assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of
whatever amount or amounts may be due" on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager
of plaintiff Caltex (Phils.) Inc., went to the defendant bank's
Sucat branch and presented for verification the CTDs declared
lost by Angel dela Cruz alleging that the same were delivered
to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp.
54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally informing
it of its possession of the CTDs in question and of its decision
to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz"
as well as "the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time deposits
(Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand
and claim for payment of the value of the CTDs in a letter dated
February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the
defendant bank matured and fell due and on August 5, 1983,
the latter set-off and applied the time deposits in question to the
payment of the matured loan (TSN, February 9, 1987, pp. 130-
131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's
fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
On appeal, as earlier stated, respondent court affirmed the
lower court's dismissal of the complaint, hence this petition
wherein petitioner faults respondent court in ruling (1) that the
subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of
deposit; and (3) in disregarding the pertinent provisions of the
Code of Commerce relating to lost instruments payable to
bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced
below to provide a better understanding of the issues involved
in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank
the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest
at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
—————————— ———————————
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-
negotiable instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather
boldly in the CTDs issued, it is important to note that after the
word "BEARER" stamped on the space provided supposedly
for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the
amount deposited shall be "repayable to said depositor" on the
period indicated. Therefore, the text of the instrument(s)
themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified
person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the
person who made the deposit and further engages itself to pay
said depositor the amount indicated thereon at the stipulated
date. 6
We disagree with these findings and conclusions, and hereby
hold that the CTDs in question are negotiable instruments.
Section 1 Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument
to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of
the law for negotiability. The parties' bone of contention is with
regard to requisite (d) set forth above. It is noted that Mr.
Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered
to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida: q In other words Mr. Witness, you are saying that
per books of the bank, the depositor referred (sic) in these
certificates states that it was Angel dela Cruz?
witness: a Yes, your Honor, and we have the record to show
that Angel dela Cruz was the one who cause (sic) the amount.
Atty. Calida: q And no other person or entity or company, Mr.
Witness?
witness: a None, your Honor. 7
xxx xxx xxx
Atty. Calida: q Mr. Witness, who is the depositor identified in all
of these certificates of time deposit insofar as the bank is
concerned?
witness: a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-
negotiability of an instrument is determined from the writing,
that is, from the face of the instrument itself.9 In the
construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained. 10 While the writing may
be read in the light of surrounding circumstances in order to
more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other
words are to be added to it or substituted in its stead. The duty
of the court in such case is to ascertain, not what the parties
may have secretly intended as contradistinguished from what
their words express, but what is the meaning of the words they
have used. What the parties meant must be determined by
what they said. 11
Contrary to what respondent court held, the CTDs are
negotiable instruments. The documents provide that the
amounts deposited shall be repayable to the depositor. And
who, according to the document, is the depositor? It is the
"bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to
the bearer of the documents or, for that matter, whosoever may
be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the
amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on
the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof.
Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned,"
but obviously other parties not privy to the transaction between
them would not be in a position to know that the depositor is
not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the agreement of
the parties thereto through facts aliunde. This need for resort to
extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused
the obscurity. 12
The next query is whether petitioner can rightfully recover on
the CTDs. This time, the answer is in the negative. The records
reveal that Angel de la Cruz, whom petitioner chose not to
implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires
both delivery and indorsement. For, although petitioner seeks
to deflect this fact, the CTDs were in reality delivered to it as a
security for De la Cruz' purchases of its fuel products. Any
doubt as to whether the CTDs were delivered as payment for
the fuel products or as a security has been dissipated and
resolved in favor of the latter by petitioner's own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent
Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote:
". . . These certificates of deposit were negotiated to us by Mr.
Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) 13 This admission is conclusive upon
petitioner, its protestations notwithstanding. Under the doctrine
of estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. 14 A party may
not go back on his own acts and representations to the
prejudice of the other party who relied upon them. 15 In the law
of evidence, whenever a party has, by his own declaration, act,
or omission, intentionally and deliberately led another to believe
a particular thing true, and to act upon such belief, he cannot,
in any litigation arising out of such declaration, act, or omission,
be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not
as security, petitioner's credit manager could have easily said
so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in
the court below, moved for a bill of particularity
therein 17 praying, among others, that petitioner, as plaintiff, be
required to aver with sufficient definiteness or particularity (a)
the due date or dates of payment of the alleged indebtedness
of Angel de la Cruz to plaintiff and (b) whether or not it issued a
receipt showing that the CTDs were delivered to it by De la
Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. 18 Had it produced the
receipt prayed for, it could have proved, if such truly was the
fact, that the CTDs were delivered as payment and not as
security. Having opposed the motion, petitioner now labors
under the presumption that evidence willfully suppressed would
be adverse if produced. 19
Under the foregoing circumstances, this disquisition
in Intergrated Realty Corporation, et al. vs. Philippine National
Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez,
supra, we quote therefrom:
The character of the transaction between the parties is to be
determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge.
However, even though a transfer, if regarded by itself, appears
to have been absolute, its object and character might still be
qualified and explained by contemporaneous writing declaring it
to have been a deposit of the property as collateral security. It
has been said that a transfer of property by the debtor to a
creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt
continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and
unambiguous language or other circumstances excluding an
intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs
the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one person
to another in such a manner as to constitute the transferee the
holder thereof, 21 and a holder may be the payee or indorsee of
a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the
CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact
that the amount involved was not disclosed) could at the most
constitute petitioner only as a holder for value by reason of his
lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily,
the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation,
must be contractually provided for.
The pertinent law on this point is that where the holder has a
lien on the instrument arising from contract, he is deemed a
holder for value to the extent of his lien. 23 As such holder of
collateral security, he would be a pledgee but the requirements
therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil
Code provisions on pledge of incorporeal rights, 24 which
inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if
a description of the thing pledged and the date of the pledge do
not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. 25 Consequently,
the mere delivery of the CTDs did not legally vest in petitioner
any right effective against and binding upon respondent bank.
The requirement under Article 2096 aforementioned is not a
mere rule of adjective law prescribing the mode whereby proof
may be made of the date of a pledge contract, but a rule of
substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel
de la Cruz in favor of respondent bank was embodied in a
public instrument. 27 With regard to this other mode of transfer,
the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce
no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement.
Contrarily, petitioner, whether as purchaser, assignee or lien
holder of the CTDs, neither proved the amount of its credit or
the extent of its lien nor the execution of any public instrument
which could affect or bind private respondent. Necessarily,
therefore, as between petitioner and respondent bank, the
latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve
into the question of whether or not private respondent observed
the requirements of the law in the case of lost negotiable
instruments and the issuance of replacement certificates
therefor, on the ground that petitioner failed to raised that issue
in the lower court. 28
On this matter, we uphold respondent court's finding that the
aspect of alleged negligence of private respondent was not
included in the stipulation of the parties and in the statement of
issues submitted by them to the trial court. 29 The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable
instruments.
2. Whether or not defendant could legally apply the amount
covered by the CTDs against the depositor's loan by virtue of
the assignment (Annex "C").
3. Whether or not there was legal compensation or set off
involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to
preterminate the CTDs before the maturity date provided
therein.
5. Whether or not plaintiff is entitled to the proceeds of the
CTDs.
6. Whether or not the parties can recover damages, attorney's
fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate
citation of some doctrinal authorities, the foregoing
enumeration does not include the issue of negligence on the
part of respondent bank. An issue raised for the first time on
appeal and not raised timely in the proceedings in the lower
court is barred by estoppel. 30 Questions raised on appeal must
be within the issues framed by the parties and, consequently,
issues not raised in the trial court cannot be raised for the first
time on appeal. 31
Pre-trial is primarily intended to make certain that all issues
necessary to the disposition of a case are properly raised.
Thus, to obviate the element of surprise, parties are expected
to disclose at a pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may
involve privileged or impeaching matters. The determination of
issues at a pre-trial conference bars the consideration of other
questions on appeal. 32
To accept petitioner's suggestion that respondent bank's
supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of
the CTDs would be tantamount to saying that petitioner could
raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a
multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence
was raised in the court below, petitioner still cannot have the
odds in its favor. A close scrutiny of the provisions of the Code
of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal
that said provisions, even assuming their applicability to the
CTDs in the case at bar, are merely permissive and not
mandatory. The very first article cited by petitioner speaks for
itself.
Art 548. The dispossessed owner, no matter for what cause it
may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends due
or about to become due, be not paid a third person, as well as
in order to prevent the ownership of the instrument that a
duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed
owner" to apply to the judge or court of competent jurisdiction
for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory
but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty,
opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private
respondent, 37 Articles 548 to 558 of the Code of Commerce,
on which petitioner seeks to anchor respondent bank's
supposed negligence, merely established, on the one hand, a
right of recourse in favor of a dispossessed owner or holder of
a bearer instrument so that he may obtain a duplicate of the
same, and, on the other, an option in favor of the party liable
thereon who, for some valid ground, may elect to refuse to
issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits
the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent
requirement therefor.
WHEREFORE, on the modified premises above set forth, the
petition is DENIED and the appealed decision is hereby
AFFIRMED.
SO ORDERED.
G.R. No. 88866, February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs. COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO
and GLORIA CASTILLO, respondents. Angara, Abello,
Concepcion, Regala & Cruz for petitioner. Bengzon, Zarraga,
Narciso, Cudala, Pecson & Bengson for Magno and Lucia
Castillo. Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association, Inc.
This case, for all its seeming complexity, turns on a simple
question of negligence. The facts, pruned of all non-essentials,
are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with
branches throughout the Philippines and even abroad. Golden
Savings and Loan Association was, at the time these events
happened, operating in Calapan, Mindoro, with the other
private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account
with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared to have
been indorsed by their respective payees, followed by Gomez
as second indorser.1
On various dates between June 25 and July 16, 1979, all these
warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings
Account No. 2498 in the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing by the branch office
to the principal office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.2
More than two weeks after the deposits, Gloria Castillo went to
the Calapan branch several times to ask whether the warrants
had been cleared. She was told to wait. Accordingly, Gomez
was meanwhile not allowed to withdraw from his account.
Later, however, "exasperated" over Gloria's repeated inquiries
and also as an accommodation for a "valued client," the
petitioner says it finally decided to allow Golden Savings to
withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount
of P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.4
In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually collecting the
total amount of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last withdrawal was made on
July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32
of the warrants had been dishonored by the Bureau of Treasury
on July 19, 1979, and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make up the
deficit in its account.
The demand was rejected. Metrobank then sued Golden
Savings in the Regional Trial Court of Mindoro.5 After trial,
judgment was rendered in favor of Golden Savings, which,
however, filed a motion for reconsideration even as Metrobank
filed its notice of appeal. On November 4, 1986, the lower court
modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties
of defendant Golden Savings and Loan Association, Inc. and
defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate
and credit to such account such amount existing before the
debit was made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings and Loan
Association, Inc. to withdraw the amount outstanding thereon
before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings
and Loan Association, Inc. attorney's fees and expenses of
litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno
Castillo and Lucia Castillo attorney's fees and expenses of
litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision was affirmed,
prompting Metrobank to file this petition for review on the
following grounds:
1. Respondent Court of Appeals erred in disregarding and
failing to apply the clear contractual terms and conditions on
the deposit slips allowing Metrobank to charge back any
amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances
where the checks or treasury warrants are forged or
unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation
is that of a mere collecting agent which cannot be held liable for
its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent
Court of Appeals, Metrobank is made to pay for warrants
already dishonored, thereby perpetuating the fraud committed
by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as
between Metrobank and Golden Savings, the latter should bear
the loss.
4. Respondent Court of Appeals erred in holding that the
treasury warrants involved in this case are not negotiable
instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court
that Metrobank was indeed negligent in giving Golden Savings
the impression that the treasury warrants had been cleared and
that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to
allow the withdrawal. Indeed, Golden Savings might even have
incurred liability for its refusal to return the money that to all
appearances belonged to the depositor, who could therefore
withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants
that Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own.
It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit.7 It was only when
Metrobank gave the go-signal that Gomez was finally allowed
by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have
exercised more care in checking the personal circumstances of
Gomez before accepting his deposit does not hold water. It was
Gomez who was entrusting the warrants, not Golden Savings
that was extending him a loan; and moreover, the treasury
warrants were subject to clearing, pending which the depositor
could not withdraw its proceeds. There was no question of
Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the signatures
of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due
care and diligence and cannot be faulted for the withdrawals it
allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness.
The amount involved was not trifling — more than one and a
half million pesos (and this was 1979). There was no reason
why it should not have waited until the treasury warrants had
been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance — and
notwithstanding that it had not received a single centavo from
the proceeds of the treasury warrants, as it now repeatedly
stresses — it allowed Golden Savings to withdraw — not once,
not twice, but thrice — from the uncleared treasury warrants in
the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of
Gloria Castillo about the clearance and it also wanted to
"accommodate" a valued client. It "presumed" that the warrants
had been cleared simply because of "the lapse of one
week."8 For a bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank would
invoke the conditions printed on the dorsal side of the deposit
slips through which the treasury warrants were deposited by
Golden Savings with its Calapan branch. The conditions read
as follows:
Kindly note that in receiving items on deposit, the bank
obligates itself only as the depositor's collecting agent,
assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved to
charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies
to checks drawn on local banks and bankers and their
branches as well as on this bank, which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft or any
other reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it
was acting only as a collecting agent for Golden Savings and
give it the right to "charge back to the depositor's account any
amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft of any
other reason." It is claimed that the said conditions are in the
nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the
deposit slips.
Doubt may be expressed about the binding force of the
conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the
depositor. Indeed, it could be argued that the depositor, in
signing the deposit slip, does so only to identify himself and not
to agree to the conditions set forth in the given permit at the
back of the deposit slip. We do not have to rule on this matter
at this time. At any rate, the Court feels that even if the deposit
slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting agent for
Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not
exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but
also for negligence, which shall be judged 'with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation.
The negligence of Metrobank has been sufficiently established.
To repeat for emphasis, it was the clearance given by it that
assured Golden Savings it was already safe to allow Gomez to
withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists (although this
is refuted by Golden Savings) but in any case that clearance
could be implied from its allowing Golden Savings to withdraw
from its account not only once or even twice but three times.
The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added
to its belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount
if the warrants are not paid for any reason is not acceptable.
Any reason does not mean no reason at all. Otherwise, there
would have been no need at all for Golden Savings to deposit
the treasury warrants with it for clearance. There would have
been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a
condition, if interpreted in the way the petitioner suggests, is
not binding for being arbitrary and unconscionable. And it
becomes more so in the case at bar when it is considered that
the supposed dishonor of the warrants was not communicated
to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier
negligence in giving express or at least implied clearance to the
treasury warrants and allowing payments therefrom to Golden
Savings. But that is not all. On top of this, the supposed reason
for the dishonor, to wit, the forgery of the signatures of the
general manager and the auditor of the drawer corporation, has
not been established.9 This was the finding of the lower courts
which we see no reason to disturb. And as we said in MWSS v.
Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
SCRA 238). It must be established by clear, positive and
convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the
treasury warrants in question are not negotiable instruments.
Clearly stamped on their face is the word "non-negotiable."
Moreover, and this is of equal significance, it is indicated that
they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law,
especially the underscored parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to
be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An unqualified order
or promise to pay is unconditional within the meaning of this
Act though coupled with —
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular account to be
debited with the amount; or
(b) A statement of the transaction which gives rise to the
instrument judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be
made on the treasury warrants makes the order or promise to
pay "not unconditional" and the warrants themselves non-
negotiable. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in the
case at bar. This conclusion conforms to Abubakar vs. Auditor
General11 where the Court held:
The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights and
privileges of a holder in due course, free from defenses. But
this treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face
the words "payable from the appropriation for food
administration, is actually an Order for payment out of "a
particular fund," and is not unconditional and does not fulfill one
of the essential requirements of a negotiable instrument (Sec. 3
last sentence and section [1(b)] of the Negotiable Instruments
Law).
Metrobank cannot contend that by indorsing the warrants in
general, Golden Savings assumed that they were "genuine and
in all respects what they purport to be," in accordance with
Section 66 of the Negotiable Instruments Law. The simple
reason is that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of
the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee
when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank
of the Philippine Islands,12 but we feel this case is inapplicable
to the present controversy. That case involved checks whereas
this case involves treasury warrants. Golden Savings never
represented that the warrants were negotiable but signed them
only for the purpose of depositing them for clearance. Also, the
fact of forgery was proved in that case but not in the case
before us. Finally, the Court found the Jai Alai Corporation
negligent in accepting the checks without question from one
Antonio Ramirez notwithstanding that the payee was the Inter-
Island Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can be imputed
to Golden Savings.
We find the challenged decision to be basically correct.
However, we will have to amend it insofar as it directs the
petitioner to credit Golden Savings with the full amount of the
treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was
P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the
dishonor. The amount he has withdrawn must be charged not
to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of
P586,589.00 should be debited to Golden Savings, as
obviously Gomez can no longer be permitted to withdraw this
amount from his deposit because of the dishonor of the
warrants. Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has already
been informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the
modification that Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of
P586,589.00 only and thereafter allowing defendant Golden
Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
SO ORDERED.
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner,
vs. HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
On 9 February 1981, petitioner Raul Sesbreño made a money
market placement in the amount of P300,000.00 with the
Philippine Underwriters Finance Corporation ("Philfinance"),
Cebu Branch; the placement, with a term of thirty-two (32)
days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse,"
No. 20496 of one (1) Delta Motors Corporation Promissory
Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per
annum;
(b) the Certificate of securities Delivery Receipt No. 16587
indicating the sale of DMC PN No. 2731 to petitioner, with the
notation that the said security was in custodianship of Pilipinas
Bank, as per Denominated Custodian Receipt ("DCR") No.
10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the
maturity date of petitioner's investment), with petitioner as
payee, Philfinance as drawer, and Insular Bank of Asia and
America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated
checks issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR
No. 10805 issued by private respondent Pilipinas Bank
("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
February 9, 1981
———————
VALUE DATE
TO Raul Sesbreño
April 6, 1981
————————
MATURITY DATE
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon
instruction of PHILIPPINE UNDERWRITES FINANCE
CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you
or your duly authorized representative at any time during
regular banking hours.
Upon your written instructions we shall undertake physical
delivery of the above securities fully assigned to you should this
Denominated Custodianship Receipt remain outstanding in
your favor thirty (30) days after its maturity.
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of
private respondent Pilipinas, Makati Branch, and handed her a
demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in effect was
asking for the physical delivery of the underlying promissory
note. Petitioner then examined the original of the DMC PN No.
2731 and found: that the security had been issued on 10 April
1980; that it would mature on 6 April 1981; that it had a face
value of P2,300,833.33, with the Philfinance as "payee" and
private respondent Delta Motors Corporation ("Delta") as
"maker;" and that on face of the promissory note was stamped
"NON NEGOTIABLE." Pilipinas did not deliver the Note, nor
any certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981
and 3 August 1981,2 again asking private respondent Pilipinas
for physical delivery of the original of DMC PN No. 2731.
Pilipinas allegedly referred all of petitioner's demand letters to
Philfinance for written instructions, as has been supposedly
agreed upon in "Securities Custodianship Agreement" between
Pilipinas and Philfinance. Philfinance did not provide the
appropriate instructions; Pilipinas never released DMC PN No.
2731, nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 19813 upon
private respondent Delta for the partial satisfaction of DMC PN
No. 2731, explaining that Philfinance, as payee thereof, had
assigned to him said Note to the extent of P307,933.33. Delta,
however, denied any liability to petitioner on the promissory
note, and explained in turn that it had previously agreed with
Philfinance to offset its DMC PN No. 2731 (along with DMC PN
No. 2730) against Philfinance PN No. 143-A issued in favor of
Delta.
In the meantime, Philfinance, on 18 June 1981, was placed
under the joint management of the Securities and exchange
commission ("SEC") and the Central Bank. Pilipinas delivered
to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest
thereon, he filed on 28 September 1982 an action for damages
with the Regional Trial Court ("RTC") of Cebu City, Branch 21,
against private respondents Delta and Pilipinas.5The trial court,
in a decision dated 5 August 1987, dismissed the complaint
and counterclaims for lack of merit and for lack of cause of
action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-
G.R. CV No. 15195. In a Decision dated 21 March 1989, the
Court of Appeals denied the appeal and held:6
Be that as it may, from the evidence on record, if there is
anyone that appears liable for the travails of plaintiff-appellant,
it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff
and charging it against DMC PN No. 2731 when its entire face
value was already obligated or earmarked for set-off or
compensation is difficult to comprehend and may have been
motivated with bad faith. Philfinance, therefore, is solely and
legally obligated to return the investment of plaintiff, together
with its earnings, and to answer all the damages plaintiff has
suffered incident thereto. Unfortunately for plaintiff, Philfinance
was not impleaded as one of the defendants in this case at bar;
hence, this Court is without jurisdiction to pronounce judgement
against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision
appealed from, the same is hereby affirmed in toto. Cost
against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision,
without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues
raised in the pleadings, the Court resolved to give due course
to the petition and required the parties to file their respective
memoranda.7
Petitioner reiterates the assignment of errors he directed at the
trial court decision, and contends that respondent court of
Appeals gravely erred: (i) in concluding that he cannot recover
from private respondent Delta his assigned portion of DMC PN
No. 2731; (ii) in failing to hold private respondent Pilipinas
solidarily liable on the DMC PN No. 2731 in view of the
provisions stipulated in DCR No. 10805 issued in favor r of
petitioner, and (iii) in refusing to pierce the veil of corporate
entity between Philfinance, and private respondents Delta and
Pilipinas, considering that the three (3) entities belong to the
"Silverio Group of Companies" under the leadership of Mr.
Ricardo Silverio, Sr.8
There are at least two (2) sets of relationships which we need
to address: firstly, the relationship of petitioner vis-a-vis Delta;
secondly, the relationship of petitioner in respect of Pilipinas.
Actually, of course, there is a third relationship that is of critical
importance: the relationship of petitioner and Philfinance.
However, since Philfinance has not been impleaded in this
case, neither the trial court nor the Court of Appeals acquired
jurisdiction over the person of Philfinance. It is, consequently, to exempt the bill from the statutory provisions relative
not necessary for present purposes to deal with this third thereto, and a bill, though not negotiable, may be transferred by
relationship, except to the extent it necessarily impinges upon assignment; the assignee taking subject to the equities
or intersects the first and second relationships. between the original parties.12 (Emphasis added)

I. We consider first the relationship between petitioner and DMC PN No. 2731, while marked "non-negotiable," was not at
Delta. the same time stamped "non-transferable" or "non-assignable."
It contained no stipulation which prohibited Philfinance from
The Court of appeals in effect held that petitioner acquired no assigning or transferring, in whole or in part, that Note.
rights vis-a-vis Delta in respect of the Delta promissory note
(DMC PN No. 2731) which Philfinance sold "without recourse" Delta adduced the "Letter of Agreement" which it had entered
to petitioner, to the extent of P304,533.33. The Court of into with Philfinance and which should be quoted in full:
Appeals said on this point:
April 10, 1980
Nor could plaintiff-appellant have acquired any right over DMC
PN No. 2731 as the same is "non-negotiable" as stamped on Philippine Underwriters Finance Corp.
its face (Exhibit "6"), negotiation being defined as the transfer Benavidez St., Makati,
of an instrument from one person to another so as to constitute Metro Manila.
the transferee the holder of the instrument (Sec. 30, Negotiable
Instruments Law). A person not a holder cannot sue on the Attention: Mr. Alfredo O. Banaria
instrument in his own name and cannot demand or receive SVP-Treasurer
payment (Section 51, id.)9
GENTLEMEN:
Petitioner admits that DMC PN No. 2731 was non-negotiable
but contends that the Note had been validly transferred, in part
to him by assignment and that as a result of such transfer, This refers to our outstanding placement of P4,601,666.67 as
Delta as debtor-maker of the Note, was obligated to pay evidenced by your Promissory Note No. 143-A, dated April 10,
petitioner the portion of that Note assigned to him by the payee 1980, to mature on April 6, 1981.
Philfinance.
As agreed upon, we enclose our non-negotiable Promissory
Delta, however, disputes petitioner's contention and argues: Note No. 2730 and 2731 for P2,000,000.00 each, dated April
10, 1980, to be offsetted [sic] against your PN No. 143-A upon
(1) that DMC PN No. 2731 was not intended to be negotiated co-terminal maturity.
or otherwise transferred by Philfinance as manifested by the
word "non-negotiable" stamp across the face of the Note10 and Please deliver the proceeds of our PNs to our representative,
because maker Delta and payee Philfinance intended that this Mr. Eric Castillo.
Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to
Delta as payee; Very Truly Yours,
(2) that the assignment of DMC PN No. 2731 by Philfinance
was without Delta's consent, if not against its instructions; and (Sgd.)
(3) assuming (arguendo only) that the partial assignment in Florencio B. Biagan
favor of petitioner was valid, petitioner took the Note subject to Senior Vice President13
the defenses available to Delta, in particular, the offsetting of
DMC PN No. 2731 against Philfinance PN No. 143-A.11
We find nothing in his "Letter of Agreement" which can be
reasonably construed as a prohibition upon Philfinance
We consider Delta's arguments seriatim.
assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add that,
Firstly, it is important to bear in mind that the negotiation of a
even had this "Letter of Agreement" set forth an explicit
negotiable instrument must be distinguished from
prohibition of transfer upon Philfinance, such a prohibition
the assignment or transfer of an instrument whether that be
cannot be invoked against an assignee or transferee of the
negotiable or non-negotiable. Only an instrument qualifying as
Note who parted with valuable consideration in good faith and
a negotiable instrument under the relevant statute may
without notice of such prohibition. It is not disputed that
be negotiated either by indorsement thereof coupled with
petitioner was such an assignee or transferee. Our conclusion
delivery, or by delivery alone where the negotiable instrument
on this point is reinforced by the fact that what Philfinance and
is in bearer form. A negotiable instrument may, however,
Delta were doing by their exchange of their promissory notes
instead of being negotiated, also be assigned or transferred.
was this: Delta invested, by making a money market placement
The legal consequences of negotiation as distinguished from
with Philfinance, approximately P4,600,000.00 on 10 April
assignment of a negotiable instrument are, of course, different.
1980; but promptly, on the same day, borrowed back the bulk
A non-negotiable instrument may, obviously, not be negotiated;
of that placement, i.e., P4,000,000.00, by issuing its two (2)
but it may be assigned or transferred, absent an express
promissory notes: DMC PN No. 2730 and DMC PN No. 2731,
prohibition against assignment or transfer written in the face of
both also dated 10 April 1980. Thus, Philfinance was left with
the instrument:
not P4,600,000.00 but only P600,000.00 in cash and the two
(2) Delta promissory notes.
The words "not negotiable," stamped on the face of the bill of
lading, did not destroy its assignability, but the sole effect was
Apropos Delta's complaint that the partial assignment by
Philfinance of DMC PN No. 2731 had been effected without the
consent of Delta, we note that such consent was not necessary
for the validity and enforceability of the assignment in favor of
petitioner.14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted
conventional subrogation, which required its (Delta's) consent,
is quite mistaken. Conventional subrogation, which in the first
place is never lightly inferred,15 must be clearly established by
the unequivocal terms of the substituting obligation or by the
evident incompatibility of the new and old obligations on every
point.16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since
it released its DMC PN No. 2731 to Philfinance, an entity
engaged in the business of buying and selling debt instruments
and other securities, and more generally, in money market
transactions. In Perez v. Court of Appeals,17 the Court,
speaking through Mme. Justice Herrera, made the following
important statement:
There is another aspect to this case. What is involved here is a
money market transaction. As defined by Lawrence Smith "the
money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." It involves
"commercial papers" which are instruments "evidencing
indebtness of any person or entity. . ., which are issued,
endorsed, sold or transferred or in any manner conveyed to
another person or entity, with or without recourse". The
fundamental function of the money market device in its
operation is to match and bring together in a most impersonal
manner both the "fund users" and the "fund suppliers." The
money market is an "impersonal market", free from personal
considerations. "The market mechanism is intended to provide
quick mobility of money and securities."
The impersonal character of the money market device
overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in
advance that it would be expenditiously transacted and
transferred to any investor/lender without need of notice to said
issuer. In practice, no notification is given to the borrower or
issuer of commercial paper of the sale or transfer to the
investor.
xxx xxx xxx
There is need to individuate a money market transaction, a
relatively novel institution in the Philippine commercial scene. It
has been intended to facilitate the flow and acquisition of
capital on an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a
borrower in the commercial paper market.18(Citations omitted;
emphasis supplied)
We turn to Delta's arguments concerning alleged compensation
or offsetting between DMC PN No. 2731 and Philfinance PN
No. 143-A. It is important to note that at the time Philfinance
sold part of its rights under DMC PN No. 2731 to petitioner on 9
February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential
requirements of compensation are listed in the Civil Code as
follows:
Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance
PN No. 143-A was due. This was explicitly recognized by Delta
in its 10 April 1980 "Letter of Agreement" with Philfinance,
where Delta acknowledged that the relevant promissory notes
were "to be offsetted (sic) against [Philfinance] PN No. 143-
A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February
1981 or from forty-nine (49) days before the "co-terminal
maturity" date, that is to say, before any compensation had
taken place. Further, the assignment to petitioner would have
prevented compensation had taken place between Philfinance
and Delta, to the extent of P304,533.33, because upon
execution of the assignment in favor of petitioner, Philfinance
and Delta would have ceased to be creditors and debtors of
each other in their own right to the extent of the amount
assigned by Philfinance to petitioner. Thus, we conclude that
the assignment effected by Philfinance in favor of petitioner
was a valid one and that petitioner accordingly became owner
of DMC PN No. 2731 to the extent of the portion thereof
assigned to him.
The record shows, however, that petitioner notified Delta of the
fact of the assignment to him only on 14 July 1981, 19 that is,
after the maturity not only of the money market placement
made by petitioner but also of both DMC PN No. 2731 and
Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken
place by operation of law because the offsetting instruments
had both reached maturity. It is a firmly settled doctrine that the
rights of an assignee are not any greater that the rights of the
assignor, since the assignee is merely substituted in the place
of the assignor 20 and that the assignee acquires his rights
subject to the equities — i.e., the defenses — which the debtor
could have set up against the original assignor before notice of
the assignment was given to the debtor. Article 1285 of the
Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set
up against the assignee the compensation which would pertain
to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the assignment.
(Emphasis supplied)
Article 1626 of the same code states that: "the debtor who,
before having knowledge of the assignment, pays his creditor
shall be released from the obligation." In Sison v. Yap-
Tico,21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with
whom he contacted to pay; and if he pay before notice that his
debt has been assigned, the law holds him exonerated, for the
reason that it is the duty of the person who has acquired a title
by transfer to demand payment of the debt, to give his debt or
notice.22
At the time that Delta was first put to notice of the assignment
in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. Since the assignor
Philfinance could not have then compelled payment anew by
Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the
portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified
Delta of the assignment or sale was effected on 9 February
1981. He could have notified Delta as soon as his money
market placement matured on 13 March 1981 without payment
thereof being made by Philfinance; at that time, compensation
had yet to set in and discharge DMC PN No. 2731. Again
petitioner could have notified Delta on 26 March 1981 when
petitioner received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by private
respondent Pilipinas in favor of petitioner. Petitioner could, in
fine, have notified Delta at any time before the maturity date of
DMC PN No. 2731. Because petitioner failed to do so, and
because the record is bare of any indication that Philfinance
had itself notified Delta of the assignment to petitioner, the
Court is compelled to uphold the defense of compensation
raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.
II.We turn now to the relationship between petitioner and
private respondent Pilipinas. Petitioner contends that Pilipinas
became solidarily liable with Philfinance and Delta when
Pilipinas issued DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall
undertake physical delivery of the above securities fully
assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that
establishes an obligation on the part of Pilipinas to pay
petitioner the amount of P307,933.33 nor any assumption of
liability in solidum with Philfinance and Delta under DMC PN
No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank,
DMC PN No. 2731 of a certain face value, to mature on 6 April
1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by
Philfinance to petitioner (9 February 1981), holding that Note
on behalf and for the benefit of petitioner, at least to the extent
it had been assigned to petitioner by payee Philfinance;24
(3) petitioner may inspect the Note either "personally or by
authorized representative", at any time during regular bank
hours; and
(4) upon written instructions of petitioner, Pilipinas would
physically deliver the DMC PN No. 2731 (or a participation
therein to the extent of P307,933.33) "should this Denominated
Custodianship receipt remain outstanding in [petitioner's] favor
thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which
could reasonably be read as converting Pilipinas into an obligor
under the terms of DMC PN No. 2731 assigned to petitioner,
either upon maturity thereof or any other time. We note that
both in his complaint and in his testimony before the trial court,
petitioner referred merely to the obligation of private
respondent Pilipinas to effect the physical delivery to him of
DMC PN No. 2731.25 Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to pay the amount
represented by a portion of the Note assigned to him by
Philfinance, appears to be a new theory constructed only after
the trial court had ruled against him. The solidary liability that
petitioner seeks to impute Pilipinas cannot, however, be lightly
inferred. Under article 1207 of the Civil Code, "there is a
solidary liability only when the law or the nature of the
obligation requires solidarity," The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on
the part of Pilipinas. Petitioner has not pointed to us to any law
which imposed such liability upon Pilipinas nor has petitioner
argued that the very nature of the custodianship assumed by
private respondent Pilipinas necessarily implies solidary liability
under the securities, custody of which was taken by Pilipinas.
Accordingly, we are unable to hold Pilipinas solidarily liable with
Philfinance and private respondent Delta under DMC PN No.
2731.
We do not, however, mean to suggest that Pilipinas has no
responsibility and liability in respect of petitioner under the
terms of the DCR. To the contrary, we find, after prolonged
analysis and deliberation, that private respondent Pilipinas had
breached its undertaking under the DCR to petitioner
Sesbreño.
We believe and so hold that a contract of deposit was
constituted by the act of Philfinance in designating Pilipinas as
custodian or depositary bank. The depositor was initially
Philfinance; the obligation of the depository was owed,
however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not consider
that this is a simple case of a stipulation pour autri. The
custodianship or depositary agreement was established as an
integral part of the money market transaction entered into by
petitioner with Philfinance. Petitioner bought a portion of DMC
PN No. 2731; Philfinance as assignor-vendor deposited that
Note with Pilipinas in order that the thing sold would be placed
outside the control of the vendor. Indeed, the constituting of the
depositary or custodianship agreement was equivalent to
constructive delivery of the Note (to the extent it had been sold
or assigned to petitioner) to petitioner. It will be seen that
custodianship agreements are designed to facilitate
transactions in the money market by providing a basis for
confidence on the part of the investors or placers that the
instruments bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely beyond
their reach, that those instruments will be there available to the
placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the
security or the thing deposited upon demand of the depositor
(or, in the presented case, of the beneficiary) of the contract,
even though a term for such return may have been established
in the said contract.26 Accordingly, any stipulation in the
contract of deposit or custodianship that runs counter to the
fundamental purpose of that agreement or which was not
brought to the notice of and accepted by the placer-beneficiary,
cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by
considerations of public policy. If there is any party that needs
the equalizing protection of the law in money market
transactions, it is the members of the general public whom
place their savings in such market for the purpose of
generating interest revenues.27 The custodian bank, if it is not
related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper
dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client
the borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the impact
of stipulations privately made between the borrowers or dealers
and the custodian banks, and disclosed to fund-providers only
after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when petitioner
first demanded physical delivery thereof on 2 April 1981. We
must again note, in this connection, that on 2 April 1981, DMC
PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet
taken place. Instead of complying with the demand of the
petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its
undertaking under the DCR to effect physical delivery of the
Note upon receipt of "written instructions" from petitioner
Sesbreño. The ostensible term written into the DCR (i.e.,
"should this [DCR] remain outstanding in your favor thirty [30]
days after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least three
grounds: firstly, such term was never brought to the attention of
petitioner Sesbreño at the time the money market placement
with Philfinance was made; secondly, such term runs counter
to the very purpose of the custodianship or depositary
agreement as an integral part of a money market transaction;
and thirdly, it is inconsistent with the provisions of Article 1988
of the Civil Code noted above. Indeed, in principle, petitioner
became entitled to demand physical delivery of the Note held
by Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must
respond to petitioner for damages sustained by arising out of its
breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively
and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefitted from such conversion
or unlawful deprivation inflicted upon petitioner, is of no
moment for present purposes. Prima facie, the damages
suffered by petitioner consisted of P304,533.33, the portion of
the DMC PN No. 2731 assigned to petitioner but lost by him by
reason of discharge of the Note by compensation, plus legal
interest of six percent (6%)per annum containing from 14
March 1981.
The conclusion we have reached is, of course, without
prejudice to such right of reimbursement as Pilipinas may
have vis-a-vis Philfinance.
III.The third principal contention of petitioner — that Philfinance
and private respondents Delta and Pilipinas should be treated
as one corporate entity — need not detain us for long.
In the first place, as already noted, jurisdiction over the person
of Philfinance was never acquired either by the trial court nor
by the respondent Court of Appeals. Petitioner similarly did not
seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private
respondents Delta and Pilipinas have been organized as
separate corporate entities. Petitioner asks us to pierce their
separate corporate entities, but has been able only to cite the
presence of a common Director — Mr. Ricardo Silverio, Sr.,
sitting on the Board of Directors of all three (3) companies.
Petitioner has neither alleged nor proved that one or another of
the three (3) concededly related companies used the other two
(2) as mere alter egos or that the corporate affairs of the other
two (2) were administered and managed for the benefit of one.
There is simply not enough evidence of record to justify
disregarding the separate corporate personalities of delta and
Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner.28
WHEREFORE, for all the foregoing, the Decision and
Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195
dated 21 march 1989 and 17 July 1989, respectively, are
hereby MODIFIED and SET ASIDE, to the extent that such
Decision and Resolution had dismissed petitioner's complaint
against Pilipinas Bank. Private respondent Pilipinas bank is
hereby ORDERED to indemnify petitioner for damages in the
amount of P304,533.33, plus legal interest thereon at the rate
of six percent (6%) per annum counted from 2 April 1981. As
so modified, the Decision and Resolution of the Court of
Appeals are hereby AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
[G.R. No. 113236. March 5, 2001]
FIRESTONE TIRE & RUBBER COMPANY OF THE
PHILIPPINES, petitioner, vs., COURT OF APPEALS and
LUZON DEVELOPMENT BANK, respondents.
This petition assails the decision[1] dated December 29, 1993 of
the Court of Appeals in CA-G.R. CV No. 29546, which affirmed
the judgment[2] of the Regional Trial Court of Pasay City, Branch
113 in Civil Case No. PQ-7854-P, dismissing Firestones
complaint for damages.
The facts of this case, adopted by the CA and based on findings
by the trial court, are as follows:
[D]efendant is a banking corporation. It operates under a
certificate of authority issued by the Central Bank of the
Philippines, and among its activities, accepts savings and time
deposits. Said defendant had as one of its client-depositors the
Fojas-Arca Enterprises Company (Fojas-Arca for
brevity). Fojas-Arca maintaining a special savings account with
the defendant, the latter authorized and allowed withdrawals of
funds therefrom through the medium of special withdrawal
slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a
Franchised Dealership Agreement (Exh. B) whereby Fojas-
Arca has the privilege to purchase on credit and sell plaintiffs
products.
On January 14, 1978 up to May 15, 1978. Pursuant to the
aforesaid Agreement, Fojas-Arca purchased on credit
Firestone products from plaintiff with a total amount of
P4,896,000.00. In payment of these purchases, Fojas-Arca
delivered to plaintiff six (6) special withdrawal slips drawn upon
the defendant. In turn, these were deposited by the plaintiff with
its current account with the Citibank. All of them were honored
and paid by the defendant. This singular circumstance made
plaintiff believe [sic] and relied [sic] on the fact that the
succeeding special withdrawal slips drawn upon the defendant
would be equally sufficiently funded. Relying on such
confidence and belief and as a direct consequence thereof,
plaintiff extended to Fojas-Arca other purchases on credit of its
products.
On the following dates Fojas-Arca purchased Firestone
products on credit (Exh. M, I, J, K) and delivered to plaintiff the
corresponding special withdrawal slips in payment thereof
drawn upon the defendant, to wit:
DATE WITHDRAWAL AMOUNT
SLIP NO.
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current account
with Citibank and in turn the Citibank forwarded it [sic] to the
defendant for payment and collection, as it had done in respect
of the previous special withdrawal slips. Out of these four (4)
withdrawal slips only withdrawal slip No. 42130 in the amount
of P981,500.00 was honored and paid by the defendant in
October 1978. Because of the absence for a long period
coupled with the fact that defendant honored and paid
withdrawal slips No. 42128 dated July 15, 1978, in the amount
of P981,500.00 plaintiffs belief was all the more strengthened
that the other withdrawal slips were likewise sufficiently funded,
and that it had received full value and payment of Fojas-Arcas
credit purchased then outstanding at the time. On this basis,
plaintiff was induced to continue extending to Fojas-Arca
further purchase on credit of its products as per agreement
(Exh. B).
However, on December 14, 1978, plaintiff was informed by
Citibank that special withdrawal slips No. 42127 dated June 15,
1978 for P1,198,092.80 and No. 42129 dated August 15, 1978
for P880,000.00 were dishonored and not paid for the reason
NO ARRANGEMENT. As a consequence, the Citibank debited
plaintiffs account for the total sum of P2,078,092.80
representing the aggregate amount of the above-two special
withdrawal slips. Under such situation, plaintiff averred that the
pecuniary losses it suffered is caused by and directly
attributable to defendants gross negligence.
On September 25, 1979, counsel of plaintiff served a written
demand upon the defendant for the satisfaction of the damages
suffered by it. And due to defendants refusal to pay plaintiffs
claim, plaintiff has been constrained to file this complaint,
thereby compelling plaintiff to incur litigation expenses and
attorneys fees which amount are recoverable from the
defendant.
Controverting the foregoing asseverations of plaintiff, defendant
asserted, inter alia that the transactions mentioned by plaintiff
are that of plaintiff and Fojas-Arca only, [in] which defendant is
not involved; Vehemently, it was denied by defendant that the
special withdrawal slips were honored and treated as if it were
checks, the truth being that when the special withdrawal slips
were received by defendant, it only verified whether or not the
signatures therein were authentic, and whether or not the
deposit level in the passbook concurred with the savings
ledger, and whether or not the deposit is sufficient to cover the
withdrawal; if plaintiff treated the special withdrawal slips paid
by Fojas-Arca as checks then plaintiff has to blame itself for
being grossly negligent in treating the withdrawal slips as check
when it is clearly stated therein that the withdrawal slips are
non-negotiable; that defendant is not a privy to any of the
transactions between Fojas-Arca and plaintiff for which reason
defendant is not duty bound to notify nor give notice of anything
to plaintiff. If at first defendant had given notice to plaintiff it is
merely an extension of usual bank courtesy to a prospective
client; that defendant is only dealing with its depositor Fojas-
Arca and not the plaintiff. In summation, defendant
categorically stated that plaintiff has no cause of action against
it (pp. 1-3, Dec.; pp. 368-370, id).[3]
Petitioners complaint[4] for a sum of money and damages with
the Regional Trial Court of Pasay City, Branch 113, docketed as
Civil Case No. 29546, was dismissed together with the
counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It
averred that respondent Luzon Development Bank was liable for
damages under Article 2176[5] in relation to Articles 19[6] and
20[7] of the Civil Code. As noted by the CA, petitioner alleged the
following tortious acts on the part of private respondent: 1) the
acceptance and payment of the special withdrawal slips without
the presentation of the depositors passbook thereby giving the
impression that the withdrawal slips are instruments payable
upon presentment; 2) giving the special withdrawal slips the
general appearance of checks; and 3) the failure of respondent
bank to seasonably warn petitioner that it would not honor two of
the four special withdrawal slips.
On December 29, 1993, the Court of Appeals promulgated its
assailed decision. It denied the appeal and affirmed the
judgment of the trial court. According to the appellate court,
respondent bank notified the depositor to present the passbook
whenever it received a collection note from another bank,
belying petitioners claim that respondent bank was negligent in
not requiring a passbook under the subject transaction. The
appellate court also found that the special withdrawal slips in
question were not purposely given the appearance of checks,
contrary to petitioners assertions, and thus should not have been
mistaken for checks. Lastly, the appellate court ruled that the
respondent bank was under no obligation to inform petitioner of
the dishonor of the special withdrawal slips, for to do so would
have been a violation of the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of
error:
25. The CA grievously erred in holding that the [Luzon
Development] Bank was free from any fault or negligence
regarding the dishonor, or in failing to give fair and timely
advice of the dishonor, of the two intermediate LDB Slips
and in failing to award damages to Firestone pursuant to
Article 2176 of the New Civil Code.[8]
The issue for our consideration is whether or not respondent
bank should be held liable for damages suffered by petitioner,
due to its allegedly belated notice of non-payment of the subject
withdrawal slips.
The initial transaction in this case was between petitioner and
Fojas-Arca, whereby the latter purchased tires from the former
with special withdrawal slips drawn upon Fojas-Arcas special
savings account with respondent bank. Petitioner in turn
deposited these withdrawal slips with Citibank. The latter
credited the same to petitioners current account, then presented
the slips for payment to respondent bank. It was at this point that
the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special
withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and
August 15, 1978, respectively, were refused payment by
respondent bank due to insufficiency of Fojas-Arcas funds on
deposit. That information came about six months from the time
Fojas-Arca purchased tires from petitioner using the subject
withdrawal slips. Citibank then debited the amount of these
withdrawal slips from petitioners account, causing the alleged
pecuniary damage subject of petitioners cause of action.
At the outset, we note that petitioner admits that the withdrawal
slips in question were non-negotiable.[9] Hence, the rules
governing the giving of immediate notice of dishonor of
negotiable instruments do not apply in this case.[10] Petitioner
itself concedes this point.[11] Thus, respondent bank was under
no obligation to give immediate notice that it would not make
payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips were not negotiable instruments. It
could not expect these slips to be treated as checks by other
entities. Payment or notice of dishonor from respondent bank
could not be expected immediately, in contrast to the situation
involving checks.
In the case at bar, it appears that Citibank, with the knowledge
that respondent Luzon Development Bank, had honored and
paid the previous withdrawal slips, automatically credited
petitioners current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored
and paid by respondent bank. It presumed that the withdrawal
slips were good.
It bears stressing that Citibank could not have missed the non-
negotiable nature of the withdrawal slips. The essence of
negotiability which characterizes a negotiable paper as a credit
instrument lies in its freedom to circulate freely as a substitute
for money.[12] The withdrawal slips in question lacked this
character.
A bank is under obligation to treat the accounts of its depositors
with meticulous care, whether such account consists only of a
few hundred pesos or of millions of pesos.[13] The fact that the
other withdrawal slips were honored and paid by respondent
bank was no license for Citibank to presume that subsequent
slips would be honored and paid immediately. By doing so, it
failed in its fiduciary duty to treat the accounts of its clients with
the highest degree of care.[14]
In the ordinary and usual course of banking operations, current
account deposits are accepted by the bank on the basis of
deposit slips prepared and signed by the depositor, or the latters
agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name
of the depositor or current account holder, the date of the
deposit, and the amount of the deposit either in cash or in
check.[15]
The withdrawal slips deposited with petitioners current account
with Citibank were not checks, as petitioner admits. Citibank was
not bound to accept the withdrawal slips as a valid mode of
deposit. But having erroneously accepted them as such,
Citibank and petitioner as account-holder must bear the risks
attendant to the acceptance of these instruments. Petitioner and
Citibank could not now shift the risk and hold private respondent
liable for their admitted mistake.
WHEREFORE, the petition is DENIED and the decision of the
Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 76788, January 22, 1990
JUANITA SALAS, petitioner, vs. HON. COURT OF APPEALS
and FIRST FINANCE & LEASING
CORPORATION, respondents. Arsenio C. Villalon, Jr. for
petitioner. Labaguis, Loyola, Angara & Associates for private
respondent.
Assailed in this petition for review on certiorari is the decision of
the Court of Appeals in C.A.-G.R. CV No. 00757 entitled
"Filinvest Finance & Leasing Corporation v. Salas", which
modified the decision of the Regional Trial Court of San
Fernando, Pampanga in Civil Case No. 5915, a collection suit
between the same parties.
Records disclose that on February 6, 1980, Juanita Salas
(hereinafter referred to as petitioner) bought a motor vehicle
from the Violago Motor Sales Corporation (VMS for brevity) for
P58,138.20 as evidenced by a promissory note. This note was
subsequently endorsed to Filinvest Finance & Leasing
Corporation (hereinafter referred to as private respondent)
which financed the purchase.
Petitioner defaulted in her installments beginning May 21, 1980
allegedly due to a discrepancy in the engine and chassis
numbers of the vehicle delivered to her and those indicated in
the sales invoice, certificate of registration and deed of chattel
mortgage, which fact she discovered when the vehicle figured
in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil
Case No. 5915 for a sum of money against petitioner before
the Regional Trial Court of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held,
thus:
WHEREFORE, and in view of all the foregoing, judgment is
hereby rendered ordering the defendant to pay the plaintiff the
sum of P28,414.40 with interest thereon at the rate of 14% from
October 2, 1980 until the said sum is fully paid; and the further
amount of P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid
decision to the Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS
for having delivered a different vehicle to petitioner, the latter
prayed for a reversal of the trial court's decision so that she
may be absolved from the obligation under the contract.
On October 27, 1986, the Court of Appeals rendered its
assailed decision, the pertinent portion of which is quoted
hereunder:
The allegations, statements, or admissions contained in a
pleading are conclusive as against the pleader. A party cannot
subsequently take a position contradictory of, or inconsistent
with his pleadings (Cunanan vs. Amparo, 80 Phil. 227).
Admissions made by the parties in the pleadings, or in the
course of the trial or other proceedings, do not require proof
and cannot be contradicted unless previously shown to have
been made through palpable mistake (Sec. 2, Rule 129,
Revised Rules of Court; Sta. Ana vs. Maliwat, L-23023, Aug.
31, 1968, 24 SCRA 1018).
When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading
as provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless
the adverse party, under oath, specifically denied them, and
sets forth what he claims to be the facts (Sec. 8, Rule 8,
Revised Rules of Court; Hibbered vs. Rohde and McMillian, 32
Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20
stated in the promissory note is the amount assumed by the
plaintiff in financing the purchase of defendant's motor vehicle
from the Violago Motor Sales Corp., the monthly amortization
of winch is Pl,614.95 for 36 months. Considering that the
defendant was able to pay twice (as admitted by the plaintiff,
defendant's account became delinquent only beginning May,
1980) or in the total sum of P3,229.90, she is therefore liable to
pay the remaining balance of P54,908.30 at l4% per
annum from October 2, 1980 until full payment.
WHEREFORE, considering the foregoing, the appealed
decision is hereby modified ordering the defendant to pay the
plaintiff the sum of P54,908.30 at 14% per annum from October
2, 1980 until full payment. The decision is AFFIRMED in all
other respects. With costs to defendant. 2
Petitioner's motion for reconsideration was denied; hence, the
present recourse.
In the petition before us, petitioner assigns twelve (12) errors
which focus on the alleged fraud, bad faith and
misrepresentation of Violago Motor Sales Corporation in the
conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any
liability to private respondent who should instead proceed
against VMS. 3
Petitioner argues that in the light of the provision of the law on
sales by description 4 which she alleges is applicable here, no
contract ever existed between her and VMS and therefore none
had been assigned in favor of private respondent.
She contends that it is not necessary, as opined by the
appellate court, to implead VMS as a party to the case before it
can be made to answer for damages because VMS was earlier
sued by her for "breach of contract with damages" before the
Regional Trial Court of Olongapo City, Branch LXXII, docketed
as Civil Case No. 2916-0. She cites as authority the decision
therein where the court originally ordered petitioner to pay the
remaining balance of the motor vehicle installments in the
amount of P31,644.30 representing the difference between the
agreed consideration of P49,000.00 as shown in the sales
invoice and petitioner's initial downpayment of P17,855.70
allegedly evidenced by a receipt. Said decision was however
reversed later on, with the same court ordering defendant VMS
instead to return to petitioner the sum of P17,855.70.
Parenthetically, said decision is still pending consideration by
the First Civil Case Division of the Court of Appeals, upon an
appeal by VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of
the petition and counters that the issues raised and the
allegations adduced therein are a mere rehash of those
presented and already passed upon in the court below, and
that the judgment in the "breach of contract" suit cannot be
invoked as an authority as the same is still pending
determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in
question is a negotiable instrument which will bar completely all
the available defenses of the petitioner against private
respondent.
Petitioner's liability on the promissory note, the due execution
and genuineness of which she never denied under oath is,
under the foregoing factual milieu, as inevitable as it is clearly
established.
The records reveal that involved herein is not a simple case of
assignment of credit as petitioner would have it appear, where
the assignee merely steps into the shoes of, is open to all
defenses available against and can enforce payment only to
the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries
Inc. v. IFC Leasing and Acceptance Corp., 6 this Court had the
occasion to clearly distinguish between a negotiable and a non-
negotiable instrument.
Among others, the instrument in order to be considered
negotiable must contain the so-called "words of negotiability
— i.e., must be payable to "order" or "bearer"". Under Section 8
of the Negotiable Instruments Law, there are only two ways by
which an instrument may be made payable to order. There
must always be a specified person named in the instrument
and the bill or note is to be paid to the person designated in the
instrument or to any person to whom he has indorsed and
delivered the same. Without the words "or order or "to the order
of", the instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument, but will merely "step into the
shoes" of the person designated in the instrument and will thus
be open to all defenses available against the latter. Such being
the situation in the above-cited case, it was held that therein
private respondent is not a holder in due course but a mere
assignee against whom all defenses available to the assignor
may be raised. 7
In the case at bar, however, the situation is different.
Indubitably, the basis of private respondent's claim against
petitioner is a promissory note which bears all the earmarks of
negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to
pay Violago Motor Sales Corporation or order, at its office
in San Fernando, Pampanga, the sum of FIFTY EIGHT
THOUSAND ONE HUNDRED THIRTY EIGHT & 201/100
ONLY (P58,138.20) Philippine currency, which amount
includes interest at 14% per annum based on the diminishing
balance, the said principal sum, to be payable, without need of
notice or demand, in installments of the amounts following and
at the dates hereinafter set forth, to wit: P1,614.95 monthly for
"36" months due and payable on the 21st day of each month
starting March 21, 1980 thru and inclusive of February 21,
1983. P_________ monthly for ______ months due and
payable on the ______ day of each month starting _____198__
thru and inclusive of _____, 198________ provided that
interest at 14% per annum shall be added on each unpaid
installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:
____________________
____________________
WITNESSES
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8
A careful study of the questioned promissory note shows that it
is a negotiable instrument, having complied with the requisites
under the law as follows: [a] it is in writing and signed by the
maker Juanita Salas; [b] it contains an unconditional promise to
pay the amount of P58,138.20; [c] it is payable at a fixed or
determinable future time which is "P1,614.95 monthly for 36
months due and payable on the 21 st day of each month
starting March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d]
it is payable to Violago Motor Sales Corporation, or order and
as such, [e] the drawee is named or indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument
itself payable to the Order of Filinvest Finance and Leasing
Corporation 10 and it is an indorsement of the entire
instrument. 11
Under the circumstances, there appears to be no question that
Filinvest is a holder in due course, having taken the instrument
under the following conditions: [a] it is complete and regular
upon its face; [b] it became the holder thereof before it was
overdue, and without notice that it had previously been
dishonored; [c] it took the same in good faith and for value; and
[d] when it was negotiated to Filinvest, the latter had no notice
of any infirmity in the instrument or defect in the title of VMS
Corporation. 12
Accordingly, respondent corporation holds the instrument free
from any defect of title of prior parties, and free from defenses
available to prior parties among themselves, and may enforce
payment of the instrument for the full amount thereof. 13 This
being so, petitioner cannot set up against respondent the
defense of nullity of the contract of sale between her and VMS.
Even assuming for the sake of argument that there is an iota of
truth in petitioner's allegation that there was in fact deception
made upon her in that the vehicle she purchased was different
from that actually delivered to her, this matter cannot be
passed upon in the case before us, where the VMS was never
impleaded as a party.
Whatever issue is raised or claim presented against VMS must
be resolved in the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court
when it held:
We can only extend our sympathies to the defendant (herein
petitioner) in this unfortunate incident. Indeed, there is nothing
We can do as far as the Violago Motor Sales Corporation is
concerned since it is not a party in this case. To even discuss
the issue as to whether or not the Violago Motor Sales
Corporation is liable in the transaction in question would
amount, to denial of due process, hence, improper and
unconstitutional. She should have impleaded Violago Motor
Sales.14
IN VIEW OF THE FOREGOING, the assailed decision is
hereby AFFIRMED. With costs against petitioner.
SO ORDERED.
G.R. No. L-2516, September 25, 1950
ANG TEK LIAN, petitioner, vs. THE COURT OF
APPEALS, respondent. Laurel, Sabido, Almario and Laurel for
petitioner. Office of the Solicitor General Felix Bautista Angelo
and Solicitor Manuel Tomacruz for respondent.
For having issued a rubber check, Ang Tek Lian was convicted
of estafa in the Court of First Instance of Manila. The Court of
Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek
Lian drew on Saturday, November 16, 1946, the check Exhibits
A upon the China Banking Corporation for the sum of P4,000,
payable to the order of "cash". He delivered it to Lee Hua Hong
in exchange for money which the latter handed in act. On
November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment,
but it was dishonored for insufficiency of funds, the balance of
the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong
who testified that "on November 16, 1946, appellant went to his
(complainant's) office, at 1217 Herran, Paco, Manila, and asked
him to exchange Exhibit A — which he (appellant) then brought
with him — with cash alleging that he needed badly the sum of
P4,000 represented by the check, but could not withdraw it
from the bank, it being then already closed; that in view of this
request and relying upon appellant's assurance that he had
sufficient funds in the blank to meet Exhibit A, and because
they used to borrow money from each other, even before the
war, and appellant owns a hotel and restaurant known as the
North Bay Hotel, said complainant delivered to him, on the
same date, the sum of P4,000 in cash; that despite repeated
efforts to notify him that the check had been dishonored by the
bank, appellant could not be located any-where, until he was
summoned in the City Fiscal's Office in view of the complaint
for estafa filed in connection therewith; and that appellant has
not paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are
final, the only question of law for decision is whether under the
facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal
Code, punishes swindling committed "By post dating a check,
or issuing such check in payment of an obligation the offender
knowing that at the time he had no funds in the bank, or the
funds deposited by him in the bank were not sufficient to cover
the amount of the check, and without informing the payee of
such circumstances".
We believe that under this provision of law Ang Tek Lian was
properly held liable. In this connection, it must be stated that,
as explained in People vs. Fernandez (59 Phil., 615), estafa is
committed by issuing either a postdated check or an ordinary
check to accomplish the deceit.
It is argued, however, that as the check had been made
payable to "cash" and had not been endorsed by Ang Tek Lian,
the defendant is not guilty of the offense charged. Based on the
proposition that "by uniform practice of all banks in the
Philippines a check so drawn is invariably dishonored," the
following line of reasoning is advanced in support of the
argument:
. . . When, therefore, he (the offended party ) accepted the
check (Exhibit A) from the appellant, he did so with full
knowledge that it would be dishonored upon presentment. In
that sense, the appellant could not be said to have acted
fraudulently because the complainant, in so accepting the
check as it was drawn, must be considered, by every rational
consideration, to have done so fully aware of the risk he was
running thereby." (Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances
have undoubtedly occurred wherein the Bank required the
indorsement of the drawer before honoring a check payable to
"cash." But cases there are too, where no such requirement
had been made. It depends upon the circumstances of each
transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check
drawn payable to the order of "cash" is a check payable to
bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument.
Bacal vs. National City Bank of New York (1933), 146 Misc.,
732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co.
(1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts
Bonding & Insurance Co. vs. Pittsburgh Pipe & Supply Co.
(Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook
& Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the
word cash "does not purport to be the name of any person",
and hence the instrument is payable to bearer. The drawee
bank need not obtain any indorsement of the check, but may
pay it to the person presenting it without any indorsement. . . .
(Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p.
494.)
Of course, if the bank is not sure of the bearer's identity or
financial solvency, it has the right to demand identification and
/or assurance against possible complications, — for instance,
(a) forgery of drawer's signature, (b) loss of the check by the
rightful owner, (c) raising of the amount payable, etc. The bank
may therefore require, for its protection, that the indorsement of
the drawer — or of some other person known to it — be
obtained. But where the Bank is satisfied of the identity and /or
the economic standing of the bearer who tenders the check for
collection, it will pay the instrument without further question;
and it would incur no liability to the drawer in thus acting.
A check payable to bearer is authority for payment to holder.
Where a check is in the ordinary form, and is payable to bearer,
so that no indorsement is required, a bank, to which it is
presented for payment, need not have the holder identified, and
is not negligent in falling to do so. . . . (Michie on Banks and
Banking, Permanent Edition, Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is
presented for payment need not necessarily have the holder
identified and ordinarily may not be charged with negligence in
failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no
reasonable cause for suspecting any irregularity, it will be
protected in paying a bearer check, "no matter what facts
unknown to it may have occurred prior to the presentment." 1
Morse, Banks and Banking, sec. 393.
Although a bank is entitled to pay the amount of a bearer check
without further inquiry, it is entirely reasonable for the bank to
insist that holder give satisfactory proof of his identity. . . .
(Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the

check Exhibit A was totally unconnected with its dishonor. The
Court of Appeals declared that it was returned
unsatisfied because the drawer had insufficient funds— not
because the drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the

penalty imposed on the appellant, the writ of certiorari is denied
and the decision of the Court of Appeals is hereby affirmed,
with costs.

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